Opinion issued March 1, 2016
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00305-CV
———————————
ROBERT HOVEL AND TANIA HOVEL, Appellants
V.
GAL BATZRI, Appellee
On Appeal from the 234th District Court
Harris County, Texas
Trial Court Case No. 2013-43259A
DISSENTING OPINION
There is an aphorism: “You can ignore reality, but you cannot ignore the
consequences of ignoring reality.” This case requires this Court to determine
whether, under Texas Tax Code section 171.255, appellee Gal Batzri, the sole
shareholder, officer, and director of 7677 Real Street, L.L.C. (“7677”), should be
held liable to appellants Robert and Tania Hovel for the torts of negligent
misrepresentation and fraud committed against them by 7677 that were reduced to
a liquidated judgment debt against the corporation after it forfeited its corporate
charter. The majority has chosen to ignore the reality of seventy unbroken years of
the Texas Supreme Court’s and appellate courts’ consistent construction of section
171.255 and to substitute its own alternative meaning of the statute’s terms under
its own chosen rules of construction.
The purpose of section 171.255, as clearly stated by the Texas Supreme
Court in 1946 and unchanged since then, is to prevent wrongful acts by culpable
corporate directors and officers and to protect the public—particularly those who
deal with corporations—by imposing personal liability on those officers for “debts
of the corporation . . . created or incurred” after forfeiture of the corporate charter
as a result of such wrongful acts. The Texas Supreme Court has required “strict
construction” of the terms of section 171.255 to ensure that culpable corporate
officers and directors are held liable for debts of the corporation created or incurred
after forfeiture of a corporate charter to the same extent that a culpable partner may
be held liable for the debts of a general partnership, including being held
personally liable for wrongful acts of the corporation that occurred before
forfeiture but were reduced to a debt of the corporation after forfeiture, as here.
2
Following that law, I would reverse the trial court’s judgment and render judgment
in the Hovels’ favor.
The majority in this case holds just the opposite. Based on its own new
construction of the terms of section 171.255 under its own rules, the majority
affirms the trial court’s judgment and absolves Batzri from liability to the Hovels
for 7677’s judgment debt for fraud and negligent misrepresentation, effectively
preventing them from recovering redress for the wrongs done to them.
Both the majority’s reasoning and its holding are exactly contrary to all
precedent and to the statute’s clear meaning and purpose. Although recognizing
that Texas Supreme Court law requires that section 171.255 of the Tax Code be
strictly, or narrowly, construed in accordance with its language, the majority
reasons that section 171.255 is not an unambiguous civil liability statute that must
be strictly construed to impose liability on culpable corporate officers to prevent
corporate wrong-doing, as the statute itself states. Rather, section 171.255 is an
ambiguous “penal” statute that must be broadly construed to protect culpable
officers under the virtually obsolete canon of construction of ambiguous criminal
statutes known as “the rule of lenity”—a rule of construction which requires broad
construction of ambiguous criminal statutes in favor of criminal defendants.
Accordingly, Batzri, viewed leniently as a criminal defendant, is not liable
for 7677’s debt to the Hovels, since the corporation’s wrongful acts of fraud and
3
negligent misrepresentation against the Hovels occurred prior to forfeiture of the
corporate charter; it is those pre-forfeiture wrongful acts—not the post-forfeiture
liquidated judgment entered on them—that constitute the “debt” of the corporation
under section 171.255; and, under the plain language of section 171.255, corporate
officers cannot be held personally liable for pre-forfeiture corporate debts. The
public doing business with a corporation that commits a wrongful act and then
forfeits its charter so that no judgment or penalty can be enforced against it must
bear the loss—not the responsible officers and directors of the corporation.
The result is an opinion that contravenes the purpose and plain language of
section 171.255, the previously uniform history of the statute’s construction, and
the policy of the state of Texas. It also creates a conflict with all other Texas
Courts of Appeals—including the Texas Supreme Court and our sister court, the
Fourteenth Court of Appeals. This act of judicial will renders the law unreliable,
puts this Court at odds with all other courts, wastes judicial resources, and greatly
increases the delay and costs of litigation in this case, even as it invites review and
reversal. Those are the consequences of ignoring the reality of the law. I,
therefore, dissent.
I would reverse the judgment of the trial court in favor of Batzri and render
judgment in favor of the Hovels.
4
Background Facts
Because the majority opinion does not include all facts necessary for the
proper disposition of this appeal, the material facts and their significance are
restated below.
In 2008, the Hovels hired 7677 to build a house for them. Batzri was 7677’s
sole shareholder, director, and president. After discovering numerous construction
defects in the home, the Hovels filed a lawsuit in February 2010 against 7677 and
others, asserting breach of contract, violation of the Deceptive Trade Practices Act,
and other related causes of action. 7677 subsequently failed to pay its franchise tax
and thus forfeited its charter on March 25, 2011, and its corporate privileges on
July 29, 2011.
Almost two years after 7677’s forfeiture of its charter, the case was tried to a
jury on March 18, 2013. 7677 did not appear at trial. The trial court therefore
granted a default judgment against 7677 on March 28, 2013, and the trial
proceeded against other defendants. The jury found that 7677, alone among the
several defendants, committed fraud and statutory fraud against the Hovels, and it
awarded them $59,000 in compensatory damages to repair their home. The jury
also found that 7677 made a negligent misrepresentation on which the Hovels
justifiably relied and was 100% liable for any negligent misrepresentation, and it
awarded the Hovels $59,000 for “[t]he difference . . . between the value of what
5
the Hovels received in the transaction and the purchase price or value given.” It
also awarded them $183,000 for “[t]he economic loss . . . otherwise suffered in the
past as a consequence of the Hovels’ reliance on the misrepresentation.”
On April 29, 2013, the trial court rendered its final judgment memorializing
the default judgment against 7677 and incorporating by reference the jury charge
and the jury findings, which the court acknowledged it had “received, filed, and
entered of record.” The judgment stated that it “finally disposes of all claims and
all parties and is appealable,” and it ordered that execution issue against 7677.
On July 24, 2013, the Hovels filed this suit against Batzri personally,
alleging that he had fraudulently transferred assets to avoid paying the judgment
against 7677 and that he could be held personally liable for 7677’s judgment debt
under Tax Code section 171.255. Following the filing of the underlying suit
against him personally, on August 2, 2014, Batzri sought to reinstate 7677’s
charter, shorn of the judgment debt to the Hovels.
On cross-motions for summary judgment, the trial court granted summary
judgment in favor of 7677 and Batzri, holding him not liable for 7677’s judgment
debt to the Hovels, and it denied the Hovels’ cross-motion on the ground that the
“debt” was incurred before the forfeiture of corporate privileges—an error the
majority repeats.
6
Discussion
The resolution of this case turns on whether 7677’s “debt” to the Hovels was
the judgment debt incurred by 7677 two years after it forfeited its charter or an
unliquidated “debt” created by 7677’s wrongful acts of fraud and negligent
misrepresentation committed by 7677 before it forfeited its charter and several
years before that “debt” was reduced to the Hovels’ tort claims against 7677 and
tried to a money judgment against the corporation. The trial court and the majority
say that 7677’s “debt” to the Hovels was “created or incurred” at the time 7677
committed its wrongs of negligent misrepresentation and fraud against the Hovels,
before 7677’s forfeiture of corporate privileges, and thus Batzri is not liable for the
debt. However, seventy years of construction of section 171.255 and its
predecessor statute say that the debt was incurred when the Hovels’ claims against
7677 were reduced to an enforceable liquidated obligation of the company in the
form of a money judgment two years after 7677 forfeited its corporate charter.
Following the law as historically developed, I would construe section 171.255 in
accordance with its language and express purpose, and I would hold Batzri
personally liable for the damages awarded to the Hovels in their judgment against
7677. The majority does the opposite.
7
Construction of Tax Code Section 171.255
The first questions to be answered in construing Tax Code section 171.255
are (1) what is a “debt of the corporation” and (2) when is a debt “created . . . or
incurred” for purposes of the section? The final question is whether the money
judgment obtained by the Hovels against 7677 two years after forfeiture of its
corporate charter is a post-forfeiture debt of 7677 enforceable against Batzri, the
sole officer and director of 7677, under section 171.255.
A. Standard of Review of Statutory Construction
The primary objective of a court in construing a statute is to give effect to
the legislature’s intent. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006); Tex.
Prop. & Cas. Ins. v. Brooks, 269 S.W.3d 645, 649 (Tex. App.—Austin 2008, no
pet.). In deriving intent, we rely on the plain meaning of the statutory text unless a
different meaning is supplied by legislative definition or is apparent from the
context, or the construction leads to absurd results. City of Rockwall v. Hughes,
246 S.W.3d 621, 625–26 (Tex. 2008); Brooks, 269 S.W.3d at 649.
Texas has long recognized that “the entire statute is intended to be
effective,” that “a just and reasonable result” is intended, and that the “public
interest is favored over any private interest.” TEX. GOV’T CODE ANN.
§ 311.021(2), (3), (5) (West 2013); see Brooks, 269 S.W.3d at 649. Therefore, in
construing a statute, “we give effect to all its words” and avoid rendering any
8
redundant or “mere surplusage.” Shumake, 199 S.W.3d at 287. Under the Texas
Code Construction Act, courts are permitted to consider, among other things,
(1) the object sought to be obtained by the statute, (2) the circumstances under
which the statute was enacted, (3) the legislative history of the statute, (4) common
law or former statutory provisions including law on the same and similar subjects,
and (5) the consequences of a particular construction. TEX. GOV’T CODE ANN.
§ 311.023 (West 2013).
B. Tax Code Section 171.255
Tax Code section 171.255 provides, in relevant part:
(a) If the corporate privileges of a corporation are forfeited for the
failure to . . . pay a tax or penalty, each director or officer of the
corporation is liable for each debt of the corporation that is created
or incurred in this state after the date on which the report, tax, or
penalty is due1 and before the corporate privileges are revived. The
liability includes liability for any tax or penalty imposed by this
chapter on the corporation that becomes due and payable after the
date of the forfeiture.
(b) The liability of a director or officer is in the same manner and to
the same extent as if the director or officer were a partner and the
corporation were a partnership.
(c) A director or officer is not liable for a debt of the corporation if
the director or officer shows that the debt was created or incurred:
1
For simplicity, I have used the terms “pre-forfeiture” and “post-forfeiture”
throughout to refer to acts that occurred, in the precise terms of the statute, before
and after “the date on which the report, tax, or penalty is due and before the
corporate privileges are revived.” See TEX. TAX CODE ANN. § 171.225(a) (west
2015).
9
(1) over the director’s objection; or
(2) without the director’s knowledge and that the exercise of
reasonable diligence to become acquainted with the affairs of
the corporation would not have revealed the intention to create
the debt.
TEX. TAX CODE ANN. § 171.255 (a)–(c) (West 2015) (emphasis added).
Under subsection 171.255(a), enforceable obligations or “debt[s] . . . created
or incurred” before forfeiture of a corporate charter (more precisely, in terms of the
statute, created or incurred before the date a tax or penalty was due but was not
paid, resulting in forfeiture of the charter) are not enforceable against corporate
officers or directors after forfeiture of the charter. See id. § 171.255(a). This
provision reflects the corporate shield doctrine. See Willis v. Donnelly, 199
S.W.3d 262, 271 (Tex. 2006) (“A bedrock principle of corporate law is that an
individual can incorporate a business and thereby normally shield himself from
personal liability for the corporation’s contractual obligations”); see Portlock v.
Perry, 852 S.W.2d 578, 582 (Tex. App.—Dallas 1993, writ denied) (“The general
rule of corporate law is that officers of a corporation are insulated from personal
liability arising from their activities performed in the scope of their duties for the
corporation.”) (citing Delaney v. Fidelity Lease Ltd., 526 S.W.2d 543 (Tex. 1975)).
However, a corporate officer may be held individually liable for a corporation’s
tortious conduct if he knowingly participates in the conduct or has either actual or
10
constructive knowledge of it. Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d
369, 375 (Tex. 1984).
Reflecting these bedrock principles of corporate law, subsection 171.255(b)
provides that a director or officer of a corporation may be held personally liable for
a debt of the corporation created or incurred after forfeiture of the corporate charter
“in the same manner and to the same extent as if the director or officer were a
partner and the corporation was a partnership.” See TEX. TAX CODE ANN. §
171.255(b); TEX. BUS. ORGS. CODE ANN. § 152.304 (West 2012) (In general, “all
partners are jointly and separately liable . . . for all obligations of the partnership
unless otherwise provided by law.”); see U.S. Rest. Props. Operating L.P. v. Motel
Enters., Inc., 104 S.W.3d 284, 293 (Tex. App.—Beaumont 2003, pet. denied)
(partners are jointly and severally liable for debts of general partnership).
However, under subsection 171.255(c) the defendant officer or director must have
actual or constructive knowledge of the wrongful acts giving rise to the “tax or
penalty” incurred as an enforceable debt after forfeiture and must not have
objected to those acts. See TEX. TAX CODE ANN. § 171.255(c).
Because an officer or director of a corporation with knowledge of a debt of
the corporation wrongfully created or incurred after forfeiture is jointly and
severally liable for the debt, the questions of what constitutes a “debt” of the
11
corporation and when the debt is “created or incurred” are of paramount
importance in construing section 171.255.
C. The Strict Construction Rule for Construing “Debt . . . Created or
Incurred” in Section 171.255(a) and the “Relation-Back” Doctrine
1. Schwab and Silberstein and the strict construction rule
Texas case law prior to this case has consistently defined the “debt” of a
corporation, as used in section 171.255, as “any legally enforceable obligation
measured in a certain amount of money which must be performed or paid within
an ascertainable period of time or on demand.” Taylor v. First Cmty. Credit
Union, 316 S.W.3d 863, 867 (Tex. App.—Houston [14th Dist.] 2010, no pet.)
(quoting Act of May 30, 1987, 70th Leg., R.S., ch. 324, § 1, 1987 Tex. Gen. Laws
1734, 1735 (defining “debt” as used in chapter 171 as formerly codified in Tax
Code section 171.109(a)(3)), repealed by Act of May 2, 2006, 79th Leg., 3rd C.S.,
ch. 1, § 5, 2006 Tex. Gen. Laws 1, 23) (emphasis added).
Taylor, decided in 2010, defined “debt” in the language of a statutory
definition added to Tax Code Chapter 171 in 1987 and repealed effective 2008 as
part of a recodification of Chapter 171 unrelated to section 171.255. In doing so,
however, it relied on an unbroken history of binding case law construing section
171.255 and defining “debt” as an enforceable financial obligation of the
corporation that now dates back seventy years to the Texas Supreme Court case of
Schwab v. Schlumberger Well Surveying Corp., 198 S.W.2d 79 (Tex. 1946).
12
In Schwab, the Texas Supreme Court construed the language “debt . . .
created or incurred” with respect to the predecessor of section 171.255 to
determine whether an officer of a corporation that had forfeited its charter could be
held personally liable for payment of a promissory note of the corporation—that is,
a legally enforceable obligation of the corporation measured in a certain amount of
money—that was renewed after forfeiture of the charter. 198 S.W.2d at 80–82; see
Taylor, 316 S.W.3d at 867. In construing the statute, the supreme court opined that
“statutes . . . making the directors or other officers of a corporation liable for its
debts where they are guilty of official delinquencies . . . though held to be remedial
in some instances, are also penal in nature, and it is generally held that they must
be strictly construed and cannot be extended beyond the clear import of their
language.” Schwab, 198 S.W.2d at 80–81 (emphasis added).
The court reasoned that the word “created” means “[t]o bring into
existence,” while the word “incurred” means “[b]rought on, occasioned, or
caused.” Id. Using these definitions, the court held that no new debt of the
corporation was created or incurred after forfeiture of the corporate charter and that
the predecessor to section 171.255 had “no application to the renewal of
obligations arising prior thereto” and therefore did not impose liability on
corporate officers for such debts. See id. at 81–82. The court refused to hold the
officer of the corporation whose charter had lapsed personally liable on the
13
promissory note renewed after forfeiture because the note merely renewed an
enforceable financial obligation of the corporation incurred in the regular course of
business prior to forfeiture and was not attributable to “official delinquencies.” Id.
The Schwab court explained its construction of section 171.255 in
accordance with “the clear import of [its] language” as appropriate to effectuate the
purpose of the statute, stating, “The statute was meant to prevent wrongful acts of
culpable officers of a corporation, and was for the protection of the public and
particularly those dealing with the corporation.” Id. (emphasis added). The “strict
construction” rule pronounced in Schwab provides that section 171.255 “cannot be
extended beyond the clear import of [its] language” so that the purpose of the
statute is achieved: to protect officers and directors of a corporation that has
forfeited its charter from joint and several liability for the debts of the corporation
only insofar as those debts arose from activities performed in the scope of their
duties and, therefore, insulated those officers and directors from personal liability.
See id. at 81; see also Portlock, 852 S.W.2d at 582 (stating general rule of liability
of corporate officer). This strict construction rule has been consistently followed
through the history of the construction of section 171.255—until now.
Twenty years after Schwab, the Texas Supreme Court again read section
171.255 strictly in accordance with its plain language and purpose. In that case,
however, it held officers and directors of a franchisee corporation that had forfeited
14
its charter liable for a liquidated corporate debt of $1,867.58 incurred for the
purchase of merchandise for the corporation four years after forfeiture. See First
Nat’l Bank of Boston v. Silberstein, 398 S.W.2d 914, 915 (Tex. 1966). Citing
subsections 171.255(a) and (c), the supreme court stated, “[P]ersonal liability is
determined by the acts of [the directors and officers] in consenting to and
approving the debts of the corporation where [it] is shown to have come to them in
the regular course of business of the corporation” after forfeiture of the corporate
charter. Id. at 916.
In 1992, the Austin Court of Appeals contrasted statutes imposing a
corporate franchise tax—which are to be liberally construed in favor of the
taxpayer to effectuate their purpose as revenue statutes—and “statutes making
directors and officers liable for corporate debts,” like section 171.255, which “must
be strictly construed and cannot be extended beyond the clear meaning of their
language.” Wilburn v. State, 824 S.W.2d 755, 760 (Tex. App.—Austin 1992, no
writ) (citing Schwab, 198 S.W.2d at 81). The Wilburn court further pointed out
that “because § 171.255 is penal in nature, it must be strictly construed to protect
those individuals against whom liability is sought.” Id. at 760–61. Thus, it held a
corporate officer liable under section 171.255 for debts wrongfully created or
incurred after the date franchise taxes were due. Id. at 761–62. The next year, the
Austin Court of Appeals, using the same reasoning and reciting the same law in
15
essentially the same situation, reached the same result. Davis v. State, 846 S.W.2d
564, 570–72 (Tex. App.—Austin 1993, no writ) (strictly construing statute and
holding corporation’s sole shareholder, president, and director liable for unpaid
franchise taxes, penalties, and interest incurred in corporation’s name after
forfeiture of corporate privileges).
Up until the present, section 171.255 has consistently been strictly construed
to ensure that an officer or director of a corporation that has forfeited its corporate
charter is held personally liable only for a “debt” of the corporation, narrowly
defined as an enforceable liquidated obligation of the corporation that is “created
or incurred” after forfeiture for a wrongful act of the corporation of which the
defendant had knowledge. See In re Trammell, 246 S.W.3d 815, 821–22 (Tex.
App.—Dallas 2008, pet. denied) (refusing to extend liability under section 171.255
beyond meaning of language and applying strict construction rule in holding that
directors and officers of corporation may lose protection from liability provided by
corporate form and become liable in same manner and to same extent as partner in
partnership); PACCAR Fin. Corp. v. Potter, 239 S.W.3d 879, 882–83 (Tex. App.—
Dallas 2007, no pet.) (strictly construing statute and holding officers and directors
of corporation that had forfeited charter not liable for corporate debt created at time
when they were not officers and directors); cf. Williams v. Adams, 74 S.W.3d 437,
440–41 (Tex. App.—Corpus Christi 2002, pet. denied) (explaining that strict
16
construction “refuses to expand the law by implications or equitable
considerations,” but rather confines interpretation of law to cases within its letter
and spirit, resolving reasonable doubts against “applicability . . . to [a] particular
case”; observing that purpose of statute was to prevent “wrongful acts of culpable
officers”; and refusing to attribute to corporate officers “negligence liability” for
“unintentional torts” of corporation).
In none of this history is there any indication that the term “debt” in section
171.255(a) is to be construed broadly so that it is “created or incurred” when the
corporation commits a wrongful act, as the majority holds. Nor is there any
indication that section 171.255 is to be construed in accordance with the criminal
law rule of lenity to protect corporate officers and directors from personal liability
for wrongful acts of the corporation of which they had knowledge, including
intentional torts of the corporation, that result in a liquidated corporate obligation
after forfeiture of the corporate charter. Rather, the established law is exactly the
opposite.
The requirements of strict construction do, however, create a tension
between section 171.255’s protection of corporate officers from liability for
enforceable obligations of the corporation created or incurred as a result of the
corporate officers’ activities within the scope of their duties in creating enforceable
obligations of the corporation before forfeiture that are liquidated after forfeiture
17
and its imposition of personal liability on corporate officers for liquidated debts of
the corporation incurred after forfeiture as a result of wrongful acts of the
corporation prior to forfeiture. The courts have resolved this tension by developing
the “relation-back doctrine.”
2. Curry and Cain and the “relation-back doctrine”
Schwab’s strict construction rule requires both (1) that the phrase “debt . . .
created or incurred” in section 171.255(a) must be strictly construed to hold
“culpable officers” and directors of a corporation liable only for “debts . . . created
or incurred” after forfeiture of the corporate charter to prevent wrongful acts of the
corporation and (2) that the term “debt” must likewise be strictly construed as a
legally “enforceable obligation measured in a certain amount of money,” in spite of
the reality that not all lawful debts of a corporation are liquidated or reduced to a
sum certain prior to forfeiture.
In 1994, in Cain v. State, the Austin Court of Appeals addressed the courts’
resolution of the tension, discussing at length the historical development of the
strict construction of section 171.255. 882 S.W.2d 515, 516–18 (Tex. App.—
Austin 1994, no writ). In reciting that history, starting with Schwab, the Cain court
stated, “In legal usage, the word ‘debt’ refers ordinarily to a liquidated money
obligation that is legally enforceable by the owner; that is to say, the legally
enforceable obligation must be for a sum certain in money.” Id. at 516 n.1 (citing
18
Seay v. Hall, 677 S.W.2d 19, 23 (Tex. 1984)) (emphasis in original). It pointed out
that Schwab had concerned “a corporate obligation on open account—a liquidated
sum and therefore an obvious ‘debt’ in legal usage.’” Id. at 516. However, some
corporate debts lawfully incurred or created in the regular course of business prior
to forfeiture were not reduced to a sum certain until after forfeiture. Therefore, the
question arose whether corporate officers could be held liable for those debts,
given the strict legal definition of “debt” applicable to section 171.255 cases.
The Cain court focused its analysis of this problem on Curry Auto Leasing,
Inc. v. Byrd, 683 S.W.2d 109 (Tex. App.—Dallas 1984, no writ), which it credited
with first explicitly applying the rule of “strict construction” of the term “debt”
employed in Schwab together with “the relation-back doctrine” to determine
whether the officers and directors of a corporation that had forfeited its corporate
privileges could be held liable under section 171.255 for a contractual obligation of
the corporation that was entered in the scope of their duties before forfeiture of the
corporate charter but was not liquidated until after forfeiture. Id. at 517.
The relation-back doctrine, as expressed in Cain and Curry, holds that
“[w]hen parties enter into a contract the law presumes they intend the
consequences of its performance. It follows that performance or implementation
of the contractual provisions relate back to and are authorized at the time of
19
execution of the contract.” Id. (quoting Curry, 683 S.W.2d at 112) (emphasis
added in Cain).
In Curry, a corporation entered a car-lease agreement in the regular course
of business and breached it before forfeiture of its corporate charter, but the sums
owed to the non-breaching party were not calculable until after the sale of the
leased car, and that sale did not occur until after forfeiture of the corporate charter;
thus, although an enforceable lease contract was entered in the regular course of
business before forfeiture, no liquidated obligation came into existence until after
forfeiture. See Curry, 683 S.W.2d at 110–11. The Curry court held that the
officers and directors were not liable for the deficiency on the sale, reasoning that
“performance or implementation of the contractual provisions relate[d] back to
and [were] authorized at the time of execution of the contract.” See Cain, 882
S.W.2d at 517 (quoting Curry, 683 S.W.2d at 112). In other words, the debt
incurred was within the scope of the officers’ duties at the time it was created.
Thus, for purposes of section 171.255, the contractual debt was created or incurred
on the date of execution of the car-lease contract—which was a legally enforceable
agreement to pay money satisfying the “strict construction” of the term “debt”—
and was not enforceable against corporate officers and directors after forfeiture of
the corporate charter. Curry, 683 S.W.2d at 112.
20
The Cain court observed, “Other decisions have followed Curry in its
application of the rule of ‘strict construction’ and the relation-back doctrine. In
these decisions also, the corporation breached its contract before forfeiture but
damages were not calculable or liquidated until after forfeiture of corporate
privileges.” 882 S.W.2d at 517 (citing McKinney v. Anderson, 734 S.W.2d 173
(Tex. App.—Houston [1st Dist.] 1987, no writ); River Oaks Shopping Ctr. v.
Pagan, 712 S.W.2d 190 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.);
Rogers v. Adler, 696 S.W.2d 674 (Tex. App.—Dallas 1985, writ ref’d n.r.e.)). The
court observed:
A common feature of Curry and the subsequent decisions is they
(1) assume the word “debt” carries a narrow, restricted meaning of a
liquidated money obligation that is legally enforceable but (2) apply
the relation-back doctrine to hold against personal liability of officers
and directors notwithstanding that assumption. Unless the courts
acted under that assumption, the relation-back doctrine is
meaningless.
Id. (emphasis in original).
The Cain court stated, “All the relevant decisions after Schwab turn on the
rule of statutory construction known as the ‘strict construction’ rule coupled with
the relation-back doctrine.” Id. It pointed out,
Schwab adhered to the narrow or strict meaning of the word “create”
and operated, moreover, on the assumption that the word “debt” also
was similarly restricted to its technical meaning of a liquidated
obligation that was legally enforceable against the corporation. The
subsequent decisions mentioned previously also operated on that
assumed meaning in applying the relation-back doctrine.
21
Id. at 518.
Cain itself, however, like this case, presented the opposite situation from
that in Curry for which the relation-back doctrine was devised—one in which a
liquidated financial penalty was incurred by a corporation after forfeiture of its
charter for wrongful acts of the corporation that occurred prior to forfeiture. In
Cain, after ordering an oil-well operator corporation to plug a number of oil wells,
which it failed to do, the Texas Railroad Commission authorized the expenditure of
State funds to plug the wells. Id. at 516. Six months later, the corporation
forfeited its corporate charter for failure to file its franchise-tax report. Id.
Subsequently, the Commission paid nearly $50,000 to plug the wells and then
sought to collect the state funds it had spent from Cain, an officer and director of
the corporation. Id.
The court observed that Cain was “contend[ing] for a liberally expanded
interpretation of the words ‘debt’ and ‘create’ so that they encompass legal
obligations of all kinds, rather than liquidated money obligations only”—exactly
like Batzri and the majority in this case. See id. at 519. But, the court concluded,
So far as we are able to find, the word “debt” as used in [section
171.255] has never been thought to include an obligation that is
unliquidated. Indeed, it is difficult to see how such a meaning could
be assigned the word if it is required to be construed strictly, that is to
say, narrowly, literally, and technically.
22
Id. That being the case, the Cain court held that the relation-back doctrine did not
apply to protect Cain from liability under section 171.255 for the penalty incurred
after forfeiture based on the wrongful acts of the corporation before forfeiture.
Notably, with respect to this case, it did not describe the strict construction rule in
terms of the rule of lenity but in terms of its opposite.
Thus, under Curry and its progeny, money owed, or a liquidated debt
incurred after forfeiture of a corporate charter on a legally enforceable contractual
obligation of a corporation lawfully created in the exercise of corporate officers’
duties before forfeiture relates back to the creation of the enforceable obligation,
even though the debt is not liquidated or not fully liquidated before forfeiture, and
corporate officers are not personally liable for the debt. And under Cain and its
progeny, financial penalties and money judgments incurred as enforceable
liquidated obligations of a corporation after forfeiture of its corporate charter due
to the wrongful acts of the corporation, occurring either before or after forfeiture,
do not relate back to the date of the unlawful act that generated the post-forfeiture
penalty or judgment, and liability for the debt may be imposed upon the
corporation’s culpable corporate officers and directors under section 171.255.
23
3. Historical application of the “strict construction” rule and the
“relation-back” doctrine
Since the time of Curry and Cain, the Texas appellate courts have
consistently applied the strict construction rule and the relation-back doctrine as
stated above.
In 1994, two months before deciding Cain, the Austin Court of Appeals,
strictly construing section 171.255, held that a corporation’s directors and officers
were personally liable for penalties assessed against the corporation after forfeiture
of its charter, holding that the “debt” was created or incurred when the Texas
Railroad Commission assessed the penalties. Jonnet v. State, 877 S.W.2d 520, 524
(Tex. App.—Austin 1994, writ denied). In Jonnet, as in the subsequent decision in
Cain, the court held that, for purposes of section 171.255(a), the corporation’s debt
for failure to pay an administrative penalty assessed by the Texas Railroad
Commission was “created or incurred” on the date the Commission entered an
order directing the corporation to pay the administrative penalty, after forfeiture,
and not on the date, nearly four years earlier, when the corporation began violating
an administrative rule requiring that oil wells be plugged. Id. at 523–24. The court
refused to apply the relation-back doctrine, holding that the penalties assessed by
the Commission were based not just on the corporation’s initial violation of a
Commission rule on a given date, but on its “ongoing violation of [the rule], which
continued day after day for nearly four years.” Id. at 524. Thus, it held that, unlike
24
cases to which the relation-back doctrine applies “in which the debt can be said to
relate back to a single date—the date of the written instrument [creating the
debt]—the conduct underlying the Commission’s order is of a continuous nature,
with no single date to which the penalty can relate back.” Id. The court held the
officers and directors liable for the penalty in their individual capacities under
section 171.255(a). Id.
The Jonnet concurrence—authored by the same judge who would author
Cain two months later—would have reached the same conclusion on different
grounds by inquiring into the legislature’s intended meaning of the word “debt” in
section 171.255. The concurrence pointed out that the word “debt” can have
various meanings; “[i]n legal usage, however, the word ‘debt’ carries a narrower,
restricted, and technical meaning,” namely “a liquidated money obligation that is
legally enforceable.” Id. at 525 (Powers, J., concurring) (emphasis in original)
(citing Seay, 677 S.W.2d at 23; 26 C.J.S. Debt 6 (1956)). It then pointed out that
“[a]bsent legislative intent to the contrary, or other evidence of a different
meaning, legal terms in a statute are presumed to have been used in their legal
sense.” Id. (citations omitted). Moreover, “the word ‘debt’ must be confined to its
narrow, restricted, and technical or legal sense because the statute and its operation
are ‘penal in nature.’” Id.
25
The Jonnet concurrence cited Schwab, 198 S.W.2d at 81, and Curry, 683
S.W.2d at 112, as both employing the strict legal definition of “debt” and observed
that “[o]ther decisions have followed Curry and Schwab with almost no real
discussion of the ‘strict construction’ rule and the relation-back doctrine,” but, in
each, “the corporation had breached its contract before forfeiture but the resulting
damages remained unliquidated until after forfeiture of corporate privileges.” Id. at
525–26. Finally, it pointed out that “[a] chief feature of these decisions, as in
Curry, is their assumption that the word ‘debt’ carries its narrow, restricted
technical or legal meaning of a liquidated money obligation that is legally
enforceable.” Id. at 526. The relation-back doctrine was thus required to preserve
the “strict construction” rule of Schwab that a “debt” for which corporate directors
and officers may be held liable under section 171.255 is a liquidated money
obligation that becomes legally enforceable after forfeiture of the corporate charter
and not one incurred before that. See id. Thus, the Jonnet concurrence’s
application of the “strict construction” doctrine is, like Cain’s, exactly the opposite
of the majority’s in this case.
Since these cases were decided, the Texas courts have consistently, until
now, defined the term “debt” in section 171.255(a) as a legally enforceable
liquidated obligation, and they have consistently applied the relation-back doctrine
to save officers and directors from liability under 171.255 for legally enforceable
26
financial obligations of a corporation created or incurred in the scope of their
duties before forfeiture of the corporate charter, even if those obligations were not
liquidated until after forfeiture. But they have never held that section 171.255
protects culpable officers of a corporation from liability for penalties or judgments
incurred after forfeiture as enforceable liquidated financial obligations of the
corporation due to wrongful acts of the corporation before or after forfeiture.
Skrepnek v. Shearson Lehman Bros., Inc., 889 S.W.2d 578 (Tex. App.—
Houston [14th Dist.] 1994, no writ), is illustrative. There, the Fourteenth Court of
Appeals, strictly construing section 171.255, held Skrepnek, a broker and officer of
Panterra Resources, Inc. (“PRI”), individually liable in fraud under section 171.255
for a judgment rendered against PRI after the forfeiture of PRI’s corporate charter
on a debt owed to Shearson for stocks purchased by Shearson for PRI after PRI’s
forfeiture of its charter. Skrepnek, 889 S.W.2d at 580–82. PRI represented that it
would pay brokerage fees and margin interest that were not paid, resulting in a loss
to Shearson. Id. at 580. The court affirmed the judgment, finding that Skrepnek
was a participant in the post-forfeiture fraud. Id. at 580–82.
Similarly, in Taylor, a lender brought an action against an automobile-
dealership corporation and its officer-director for the balance due on defaulted
retail automobile installment contracts. See Taylor, 316 S.W.3d at 865. The
lender alleged, and the trial court found, that the dealership breached its contractual
27
obligations to the lender by failing to provide good title to the motor vehicles the
dealership sold to its customers under the contracts assigned to the lender and by
committing other similar acts. Id. The dealer’s wrongful acts breached its
contractual obligations to both the vehicle-purchaser and the lender and provided
the vehicle-purchaser with a defense against the lender as the holder of the retail
installment agreement. Id. The corporation’s privileges were subsequently
revoked for failure to file a required franchise tax report. Id. The lender sued the
corporation and the corporation’s officer-director, Taylor. Taylor sought
application of the relation-back doctrine to protect himself from liability for the
money judgment entered against him in favor of the lender. Id. at 866–67. The
trial court held against him, and, refusing to apply the relation-back doctrine, the
appellate court affirmed the trial court’s judgment holding Taylor personally liable
for the dealership’s wrongful acts. Id.
By contrast, Beesley v. Hydrocarbon Separation, Inc. falls into the line of
cases in which the relation-back doctrine does apply and corporate officers and
directors are not held liable for corporate obligations liquidated after forfeiture. In
Beesley, the Dallas Court of Appeals held that the promoter and officer of a
corporation that had forfeited its corporate charter could not be held personally
liable for the corporation’s breach of a consulting agreement entered into by the
corporation and its former owner before forfeiture. 358 S.W.3d 415, 423 (Tex.
28
App.—Dallas 2012, no pet.). The court explicitly drew a distinction between the
type of debt incurred in Cain (a penalty for “costs of plugging oil wells” that
corporate officers were obligated by law to plug) and Taylor (damages for
“breaches of warranty and failure to provide good title to automobiles”), which
could not be “measured in a certain amount of money” at the time of contracting,
and the debts incurred in Rogers, 696 S.W.2d 674 (losses due to post-forfeiture
breach of purchase contract entered into long before forfeiture), Curry, 683 S.W.2d
109 (corporate debts arising from failure to adhere to leasing contract), and the
case at hand, Beesley itself (breach of employment agreement)—each of which
involved a contract that was entered in the regular course of business prior to
forfeiture and “specified both the amount and the date due, so that at the time of
contracting, a ‘debt’ was ‘created’ for purposes of section 171.255.” Id. at 423 n.7.
The distinction drawn in Beesley between types of debt to which the
relation-back doctrine does and does not apply is informative here. It places the
judgment entered against 7677 squarely within the category of liquidated judgment
debts incurred by a corporation after forfeiture of the corporate charter as a result
of acts of wrongdoing by the corporation that occurred prior to forfeiture. The
relation-back doctrine does not apply to such acts of wrongdoing, and corporate
officers and directors with knowledge of the wrongdoing may be held personally
liable for the corporate debt under section 171.255.
29
I agree with the law as set out in Beesley and the other foregoing cases and
find in them the correct construction of section 171.255. Thus, I disagree with the
majority’s unique construction of section 171.255. Because the scenario in Cain
and its progeny—in which the relation-back doctrine was held not to apply—is
materially the same as here, I would apply the same reasoning as in Cain, and I
would hold that the debt in this case was incurred when the Hovels obtained a
legally enforceable liquidated money judgment against 7677 two years after
forfeiture of 7677’s corporate charter for its wrongful acts of negligent
misrepresentation and fraud against them prior to forfeiture. Therefore, I would
hold that Batzri, as 7677’s sole officer and director, is personally liable to the
Hovels for that debt—exactly contrary to the majority opinion, but consistent with
Schwab, Schlumberger, Curry, Cain, and their progeny.
D. The Majority’s “Strict Construction” of Tax Code Section 171.255
Under the “Rule of Lenity”
The majority opinion contrasts sharply with the foregoing cases. The
majority begins its analysis of Tax Code section 171.255 by characterizing Schwab
and Curry as support for a subtly but foundationally corrosive argument. It states,
“Although the statute imposes civil disability, Section 171.255 of the Tax Code
operates as a penal statute” and “[b]ecause Section 171.255 is a penal statute, we
must ‘strictly construe’ any ambiguity in favor of the party penalized by it.” Slip
Op. at 8 (citing Schwab and Curry) (emphasis added).
30
As shown above, neither Schwab nor Curry characterizes section 171.255 as
a penal, or criminal, statute as opposed to a civil one, or as an ambiguous statute to
be construed in favor of culpable defendants. Schwab says that “statutes . . .
making the directors or other officers of a corporation liable for its debts where
they are guilty of official delinquencies . . . though held to be remedial in some
instances, are also penal in nature, and it is generally held that they must be strictly
construed and cannot be extended beyond the clear import of their language.” 198
S.W.2d at 80–81 (emphasis added). There is no assertion that section 171.255 is a
criminal statute, no mention of any ambiguity in its language, and no mention that
it is to be strictly construed in favor of culpable defendants. To the contrary,
Schwab holds that the statute is “remedial . . . and also penal in nature” and that
such statutes “cannot be extended beyond the clear import of their language.” Id.
And Curry and Cain, as well as the other cases cited above, all carry forward the
rule of Schwab that the term “debt” in section 171.255 must be strictly construed as
a liquidated financial obligation of a corporation, merely adding the relation-back
doctrine to this definition so that the corporate debt relates back to the lawful
creation of the enforceable contractual obligation and corporate officers and
directors are not personally liable for any part of the lawfully incurred debt that is
liquidated after forfeiture.
31
Nevertheless, undeterred by the text of Schwab and Curry, the majority
states, “‘Strict construction,’ in the context of construing a penal statute, does not
mean that each individual term must be read narrowly. It means that, when a
statutory provision is unclear, the statute is read in its entirety in a way that
benefits the party facing the possibility of a penalty. . . .” and that “strict
construction of the entire statute, as opposed to strict construction of an isolated
word, might require that an individual word be read broadly to accomplish a
construction in favor of the party facing the penalty.”2 Slip Op. at 10–11
(emphasis added; citations omitted). Schwab, however, requires that section
171.255 be strictly construed to protect the public, rather than the corporate
wrongdoer, stating, “The statute was meant to prevent wrongful acts of culpable
officers of a corporation, and was for the protection of the public.” 198 S.W.2d at
81–82.
The majority bolsters its mischaracterization of Schwab and Curry with
additional misleading and incorrect citations, beginning with a 1964 case that
followed Schwab—Sheffield v. Nobles, 378 S.W.2d 391 (Tex. Civ. App.—Austin
1964, writ ref’d). The majority quotes from Sheffield the phrase that section
2
“When I use a word,” Humpty Dumpty said…, “it means just what I choose it to
mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many
different things.”
LEWIS CARROLL, ALICE THROUGH THE LOOKING GLASS.
32
171.255 is a statute that is “highly penal in nature and one which could produce
great hardship.” Slip Op. at 8. It does not quote the Sheffield court’s following
statement that it had found no indication “that the statute should not be enforced
according to its terms” and that “[t]he liability fixed by the statute under facts
present here is the liability of partners.” Sheffield, 378 S.W.2d at 392 (emphasis
added). In other words, it does not reference the Sheffield court’s recognition that
section 171.255 is to be construed strictly, in accordance with its plain,
unambiguous language so that it imposes on a defendant officer or director of a
corporation that has forfeited its charter the same civil liability that a partner has to
persons wronged by the partnership, just as the statute requires. See TEX. TAX
CODE ANN. § 171.255 (b), (c). Sheffield does not support the majority’s
construction of section 171.255 as an ambiguous penal statute meant to be
construed broadly to protect culpable corporate officers. Like Schwab, it
contradicts that construction.
The majority reaches the real crux of its argument, however, only in a
footnote, citing a treatise of its choice instead of case law or the Texas Code
Construction Act, and stating, “This rule [of strict construction] functions much
like the rule of lenity.” Slip Op. at 8 n.7 (emphasis added). It explains: “The rule
of lenity is ‘sometimes cast as the idea that “[p]enal statutes must be construed
strictly” and sometimes as the idea that, if two rational readings are possible, the
33
one with the less harsh treatment of the defendant prevails.’” Id. at 9 n.7 (quoting
ANTONIN SCALIA & BRYAN GARNER, READING LAW: THE INTERPRETATION OF
LEGAL TEXTS 296 (2012)). It then cites the same treatise for the proposition that
“[t]he rule ‘applies not only to crimes but also to civil penalties.’” Id. at 9 n.7
(quoting SCALIA & GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS
at 297).
And for precedential support for these propositions in Texas law, it turns to a
concurrence in a Texas Court of Criminal Appeals case, Cuellar v. State, 70
S.W.3d 815 (Tex. Crim. App. 2002) (Cochran, J., concurring), in which the
concurring judge would have applied the rule of lenity to an ambiguous criminal
statute—not to an unambiguous civil statute. It is worth taking a look at Cuellar
for the actual treatment of the rule of lenity in Texas law.
In Cuellar, Judge Cochran joined the majority opinion, but she also
concurred, adding that, in a case like Cuellar, in which a criminal statute is
ambiguous, “the Rule of Lenity requires this Court to adopt the less harsh
interpretation of penal statutes.” Id. at 821. She added, “Fortunately, Texas courts
rarely need resort to the Rule of Lenity to construe its penal provisions, due to the
drafting of the Texas Penal Code with clarity, precision, and straightforward, well-
defined language.” Id. at 822. Thus, it is clear that Judge Cochran never
conceived of the rule of lenity as applicable to a civil statute, or an unambiguous
34
one, or one that must be strictly construed. Moreover, even as stated, her Cuellar
concurrence drew a sharp dissent from fellow Court of Criminal Appeals Judge
Michael Keasler. Judge Keasler disagreed that the rule of lenity is available in
Texas as a first resort to resolve an ambiguity in a criminal statute, much less to
construe an unambiguous civil liability statute. See id. at 837–38 (Keasler, J.,
dissenting). After observing that Judge Cochran had cited “an 1886 Texas case
and a 1955 United States Supreme Court case as authority,” Judge Keasler stated,
“[B]oth our Court and the United States Supreme Court have since greatly limited
the application of that rule.” Id. at 836–37. He pointed out how rare its use was in
the criminal law and that it had been superseded in that law in almost all cases by
the Code Construction Act. Id. at 837–38.3 Nevertheless, the majority forces this
3
Judge Keasler pointed out:
Today, our leading case on statutory construction [of the Penal
Code] is Boykin v. State. In Boykin, we explained that if the
meaning of the statutory text should have been plain to the
legislators who voted on it, we should give effect to that meaning.
But if the plain language is ambiguous or leads to an absurd result,
we should then consider extratextual factors. The extratextual
factors include those listed in the Code Construction Act and
mentioned above. No mention is made in Boykin of the rule of
lenity. A year after we handed down Boykin, we analyzed a statute’s
meaning by following the method outlined in Boykin, specifically
rejecting the dissent’s reliance on the rule of lenity. That does not
mean that the rule of lenity no longer exists in Texas. But it should
not be used until all other avenues have been exhausted and a
statute’s meaning remains ambiguous.
Cuellar v. State, 70 S.W.3d 815, 837–38 (Tex. Crim. App. 2002) (Keasler, J., dissenting).
35
rule of construction, as it understands it, upon the Tax Code as a rule of first resort
for construing unambiguous civil liability statutes, thus undermining the substantial
body of Texas precedent construing section 171.255 consistently over the last
seventy years.
E. The Majority’s Analysis of the Case Law Construing Section 171.255
and the Effect of the Enactment and Repeal of the Statutory Definition
of “Debt”
Two crucial errors drive the majority’s application to this case of the rule of
lenity, miscalled “strict construction.”
First, recognizing that section 171.255 has been consistently “strictly
construed,” in accordance with the rule in Schwab, it purports to follow that rule,
but, instead of following the plain language of section 171.255 and Schwab and the
other cases construing and applying the requirements of the rule of strict
construction—which would lead it to the opposite result from the one it believes
warranted in this case—it redefines “strict construction” to mean its exact opposite,
“the rule of lenity.” It then construes section 171.255—an unambiguous civil
statute—as an ambiguous criminal statute to which it claims the rule of lenity
applies as a rule of construction of the first resort. And, even though the Texas
courts have consistently held that the rule of strict construction requires a narrow
definition of the terms of section 171.255, the majority holds that the rule (being
really the rule of lenity) requires extremely broad construction. Finally, it
36
maintains that the Texas courts have actually construed section 171.255 as the
majority currently does except when they have gotten pulled off track by the
statutory definition of “debt” in Tax Code chapter 171, which is now repealed and
therefore inapplicable.
Second, because the proper construction of section 171.255 turns on when
the “debt of the corporation [was] created or incurred,” TEX. TAX CODE ANN.
§ 171.255(a), the majority not only has to redefine these terms broadly, especially
the term “debt” in section 171.255, to conform to its conception of the
requirements of the rule of lenity, but it also has to reconstruct the rationale and
application of the relation-back doctrine. It does this in two ways. It declares that
the creation of a “debt” relates back to the wrongful acts of culpable officers prior
to forfeiture so that they are protected from liability for those acts under section
171.255. It then declares that the case law has interpreted the terms of section
171.255 and the relation-back doctrine in accordance with the rule of lenity, as the
majority itself does, except from the period from 1987, when the legislature
arbitrarily introduced a new definition of the term “debt” into the case law—one
requiring that the term be construed narrowly rather than broadly in favor of
defendants in accordance with the rule of lenity—until 2008, when, just as
arbitrarily, the legislature withdrew the definition, eradicating it and leaving the
37
courts—namely this one—free to reconstruct the definition of the terms of the
statute at will and thus to restore the rule of lenity.
The majority’s argument is analyzed below.
1. The three stages of construction of section 171.255
The majority divides the historical development of the construction of
section 171.255 into three sections. The first it calls the “pre-1987 era,” i.e., the
period before the legislature incorporated a statutory definition of “debt” into Tax
Code Chapter 171. It describes this period as one in which “debts were considered
created or incurred at the time the relevant contractual obligations were incurred”
and unliquidated debts “were permitted to relate back to the contractual
obligations.” Slip Op. at 12. At that time, the majority opines, “strict construction,
in the sense of achieving a narrow application of a statute as a whole was first
applied in a forfeiture case in Schwab.” Id. at 13. “Strict construction,” so
defined, the majority states, “resulted in the officers of the corporation not having
personal liability for the entity’s debts, consistent with the previously announced
view that ‘before any one should be punished, either in a criminal or a civil action,
. . . the offense should be clearly defined’ and ‘doubt as to the intention of the
legislature should be resolved in favor of the defendant.’” Id. at 13–14. In support
of its argument, the majority cites an inapposite 1892 case, Gulf, C. & S.F. Ry. Co.
v. Dwyer, 19 S.W. 470 (Tex. 1892), on the construction of ambiguous statutes,
38
which contains nothing that supports its construction of section 171.255, an
unambiguous statute.
The majority’s reconstruction of the second stage of section 171.255
interpretation, “1987,” is equally unprecedented. The majority describes 1987 as
the year “when the Tax Code was amended to include a narrow definition of
‘debt,’ limiting it to a liquidated obligation.” Id. at 12. Prior to that, the majority
opines, the term “debt” in section 171.255(a) was ambiguous. Id. at 17. As
support, it cites another 1892 case and a 1938 case, both of which long predated
section 171.255 and neither of which supports its claim. See id. (citing Barber v.
City of E. Dallas, 18 S.W. 438, 439 (Tex. 1892) (construing term “debt” in
“common parlance” as including liability for damages resulting from tortious acts,
while observing that term “has been differently defined, owing to the subject-
matter of the statutes in which it has been used” and “ordinarily . . . imports a sum
of money arising upon a contract,” but may “include all obligations to pay money,
whether arising from contract or implied by law, as a compensation for damages”),
and Reconstruction Fin. Corp. v. Gossett, 111 S.W.2d 1066, 1073 (Tex. 1938)
(following Barber in declaring that term “debt” is used in courts of this state “in a
general, and not in a restricted, sense,” and “has been differently defined, owing to
the subject matter of the statutes in which it has been used,” ordinarily
“import[ing] a sum of money arising upon a contract,” but, in its more general
39
sense, meaning “that which one person is bound to pay to or perform for
another”)).
Notably, both of the pre-section 171.255 cases cited by the majority as
support for its broad reading of the term “debt” in section 171.255(a) are entirely
compatible with established law construing section 171.255 strictly as an
enforceable financial obligation for purposes of that section of the Tax Code, and
neither case is relevant to show any ambiguity in the definition of the terms of
section 171.255 or to meet any requirement that the term “debt” in that statute be
construed broadly. Nevertheless, the majority opines, “By adding the narrow
statutory definition, the term was no longer ambiguous or subject to broad
interpretation by the courts.” Slip Op. at 18.
The third period the majority views as pivotal, “post-2008,” is characterized
by the majority—again without precedent—as a time in which, after repeal of the
statutory definition of “debt” in Tax Code Chapter 171, the “basis for rejecting the
‘relation-back’ doctrine is removed,” and, once again, “the pre-1987 view of this
statute, which focused on broadly construing ‘created’ and ‘incurred’ and allowed
unliquidated debts to relate back to the contractual obligations from which they
arose, controls.” Id. at 21, 12. At that time, the majority opines, “the ‘relation-
back’ doctrine reemerged to avoid individual liability for pre-forfeiture acts that
lead to post-forfeiture judgments.” Id. at 21.
40
2. The effect of repeal of the statutory definition of “debt”
The majority’s reconstructed three-stage history of the construction of
section 171.255 turns not only upon the reinterpretation of the term “strict
construction” as “the rule of lenity” but also upon the enactment of the statutory
definition of “debt” and its repeal as marking a sharp turn in the proper analysis of
the statute. To reach this conclusion, however, the majority must not only
reconstruct the case law, as set out below, but it must also conclude “that the
repealed statutory definition is not only no longer binding but, at this point, has
become immaterial to our analysis of Section 171.255.” Slip Op. at 25. It supports
this claim by again picking a canon of construction of its choice from the treatise
Reading Law by Scalia and Garner, namely a rule which states, “‘When a statute is
repealed, it falls irretrievably into oblivion,’ and has no effect.” Id. (quoting
SCALIA & GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS at 334).
“As a result,” the majority opines, “we are not constrained by the narrow definition
of a ‘debt’ as a liquidated sum certain. Instead, we look to the other pre- and post-
repeal cases to analyze when 7677’s debt was created or incurred.” Id. at 25–26.
The Texas Supreme Court—whose instructions the majority essentially
ignores—has, however, never held that whenever any statute, much less a general
statutory definition applicable to many diverse statutes, has been repealed it “falls
irretrievably into oblivion.” Instead, Texas law holds that when a statute has been
41
re-codified and text omitted, with no clear statement by the Legislature that a
substantive change is intended, and with no replacement by a clearly conflicting
statement of law, the courts must “diligently attempt to ascertain legislative intent
and shall consider at all times the old law, the evil, and the remedy.” Energy Serv.
Co. of Bowie, Inc. v. Superior Snubbing Servs., Inc., 236 S.W.3d 190, 194 (Tex.
2007) (quoting TEX. GOV’T CODE ANN. § 312.005 (West 2013)). Furthermore,
“[a]bsent any identifiable reason for a substantive change to have been made in the
statutory provision, or any extra-textual indication that one was intended, or any
resulting change in industry practice, . . . the most reasonable construction of [the
statute] is the same as its pre-[textual-change] predecessors.” Id. at 195
(construing Texas Labor Code section 417.004). Such is the case here, and the
instruction of the supreme court on construing a statute in these circumstances is
exactly the opposite of the instruction the majority draws from the Scalia and
Garner treatise and follows.
The statutory definition of the term “debt” in Tax Code Chapter 171 was
repealed in 2008 during a recodification of the chapter. The amendments had
nothing to do with section 171.255, which provides for the liability of officers of a
corporation that has forfeited its charter for the corporation’s debt. Instead, as the
majority itself acknowledges, it was “part of a series of amendments designed to
fund Texas schools by adopting new methods to calculate businesses’ tax bills.”
42
Slip Op. at 22 n.15 (citing Senate Research Center, Bill Analysis, Tex. H.B. 3, 79th
Leg., 3d C.S. (2006)). The amendments to Chapter 171 were not intended to
change the narrow definition of “debt” historically applied in section 171.255, a
statute making directors and officers liable for corporate debts; they were intended
to permit courts to apply a broader definition when calculating businesses’ tax
bills. The definition of “debt” formerly applied to all of Chapter 171 did not need
to be replaced for purposes of construing section 171.255 because the definitions
of the terms “debt,” “created,” and “incurred” were all well established as strictly
construed with respect to section 171.255 and its predecessor long before the
chapter’s statutory definition of “debt” was enacted in 1987. The legislative history
of the amendments did not indicate that any substantive change was intended with
respect to the definition of “debt” for section 171.255 either when it was added or
when it was repealed. Instead, it made clear that the amendments were intended
for another purpose entirely.
The Texas Supreme Court has instructed that, “[a]bsent any identifiable
reason for a substantive change to have been made in the statutory provision, . . .
the most reasonable construction of [the statutory term] is the same as its pre-
[amendment] predecessors.” See Energy Serv. Co., 236 S.W.3d at 195. The
majority, however, disregards the readily “identifiable reasons” for repeal of the
use of the narrow definition of debt applicable to section 171.255 for the entirety of
43
chapter 171—reasons which have nothing to do with changing the definition of
“debt” for purposes of section 171.255. And it errs in concluding that it has license
to rely on Scalia and Garner’s Reading Law to redefine the term “debt” in section
171.255(a) in accordance with its own best lights, deeming the statutory definition
to have fallen “irretrievably into oblivion.” Slip Op. at 25. It should have adopted
the historic construction of the term.
3. The majority’s application of the rule of “strict construction” pre-
1987, 1987–2008, and post-2008
For the majority, if not for previous courts constrained by rule and
precedent, the construction of section 171.255 changed dramatically from the time
of Curry, when Schwab’s rule of lenity was incorporated into the relation-back
doctrine, in 1987, when the narrow statutory definition of “debt” was enacted and
the rule of lenity, with its broad interpretation of the terms of section 171.255, was
pushed aside; and it changed dramatically again in 2008, when the narrow statutory
definition of “debt” was repealed and fell “irretrievably into oblivion,” permitting
the restoration of the rule of lenity as the rule of construction of section 171.255.
The majority leads off its analysis of the pre-1987 construction of section
171.255 with Schwab, stating, “The rule of strict construction, in the sense of
achieving a narrow application of a statute as a whole was first applied in a
forfeiture case in Schwab.” Slip Op. at 13. As shown above, this is incorrect. The
majority then portrays Schwab as carrying forward under the rubric of “strict
44
construction”—by which it really means “the rule of lenity”—the rule of
construction of ambiguous criminal statutes from the 1892 Dwyer case, stating that
“‘before any one should be punished, either in a criminal or a civil action, . . . the
offense should be clearly defined’ and ‘doubt as to the intention of the legislature
should be resolved in favor of the defendant.’” Slip Op. at 13–14 (quoting Dwyer,
19 S.W. at 471).
The majority then compounds the distorting effect of its reconstruction of
the case law, characterizing the relation-back doctrine as set out in Curry as a
further example of the rule of lenity (called, again, “strict construction”), claiming
that, “‘[s]trictly construing’ Section 171.255, the [Curry] court held that the
corporate officers were not personally liable because ‘the obligations,
circumstances, conduct, or transactions that create[d] or incur[red] the debt in
question pre-existed the forfeiture,’ even though the debt was, at that point, still
unliquidated.” Slip Op. at 14 (quoting Curry, 683 S.W. 2d at 112). What Curry
actually said was that the relation-back doctrine applied as “strictly construed and
limited by the facts of this case.” 683 S.W.2d at 112 (emphasis added). The facts
in Curry reflected that the debt on which the corporate defendant had been sued
was for “a sum of money . . . due Curry Auto” under a contract executed in the
regular course of business prior to forfeiture of the corporate charter, and “[n]o
argument [was] made that a sum of money [was] due Curry Auto under a new,
45
different, separate, or independent agreement between the parties,” and thus, “[n]o
debt for which the corporate officers are liable is shown to have been ‘created or
incurred’ after the forfeiture.” Id. Thus, the majority’s claim that Curry applied
the rule of lenity and held that corporate officers are not liable for “unliquidated”
obligations of a corporation created prior to forfeiture of the corporate charter is
simply incorrect.
Cain explains this, but the majority repudiates Cain, stating in a
footnote:
We disagree with Cain v. State, 882 S.W.2d 515, 519 (Tex. App.—
Austin 1994, no writ), which held that a strict construction of Section
171.255 requires courts to adopt the strictest possible definition of
each statutory term. Indeed, the definitions given for “create” and
“incur” in Schwab v. Schlumberger Well Surveying Corp., 198 S.W.2d
79, 81 (Tex. 1946)—which are recited axiomatically in almost every
Section 171.255 case—are remarkably broad.
Slip Op. at 11 n.8. Thus, it condemns Cain as being in opposition to Curry, which
it believes “is consistent with strict construction” as it sees it—namely consistent
with the rule of lenity. It then states, “Many intermediate appellate courts have
followed Curry.” Slip Op. at 15. Thus, while the bare statement that many courts
have followed Curry is correct, it is profoundly misleading because it is based on
an improper analysis of both the relation-back doctrine as propounded in Curry
and Cain and the rule of strict construction as propounded in Schwab.
46
The majority’s backwards understanding of the terms “strict construction”
and “debt” and of the relation-back doctrine colors all the case law it addresses.
As a result, the majority fails to discern the various types of debt distinguished by
the case law construing section 171.255. It conflates those cases, and it attributes
the holding in all of them to the rule of lenity under the rubric of “strict
construction” or to its temporary suspension by the legislative imposition of a
narrow definition of debt as a liquidated obligation between 1987 and 2008.
The majority opines that Rogers and other section 171.255 cases that
followed Curry support its arguments construing section 171.255 in terms of the
rule of lenity. See Slip Op. at 15–16. Actually, however, in cases like Rogers and
McKinney, as in Curry, the courts’ decisions gave effect to the lawful intentions of
the parties to a preexisting contract, preserved rights that would otherwise have
been lost, or afforded a remedy to a creditor of the corporation when none would
otherwise exist; thus, in each of these cases, the relation-back doctrine as
traditionally understood applied. See Cain, 882 S.W.2d at 518 (discussing
relation-back doctrine and citing these cases); McKinney, 734 S.W.2d at 174–75
(holding that payments due under lease agreement incurred in regular course of
business prior to forfeiture were created or incurred at time of execution of
agreement, not at time when payments came due, and were not recoverable from
corporate officers); Rogers, 696 S.W.2d at 674 (addressing losses due to post-
47
forfeiture breach of purchase contract entered into long before forfeiture); Curry,
683 S.W.2d at 112.
The majority cites Jonnet (which I have discussed above as explaining the
rationale for the relation-back doctrine) only twice—both times citing the dissent.
Slip Op. at 10–11, 18 (citing Jonnet, 877 S.W.2d at 537, 536 (Jones, J.,
dissenting)). And it claims Skrepnek (also discussed above) is consistent with its
“rule of lenity” interpretation of “strict construction” and the relation-back doctrine
and that it was decided on grounds that are “not an issue” in this case, without
citing the similarity of the facts in Skrepnek to those in this case or its holding that
corporate officers are liable for enforceable corporate obligations wrongfully
incurred after forfeiture of a corporate charter. Slip Op. at 23–24.
The majority also cites, in support of its “rule of lenity” analysis, cases
decided after the Legislature repealed Chapter 171’s statutory definition of “debt”
in 2008. These cases include Beesley (likewise discussed above). But the majority
only says of Beesley, incorrectly, that “it does not address the issue we face” and
that the analysis in that case “is consistent with applying the ‘relation-back’
doctrine.” Slip Op. at 24–25.
The majority also includes Rossman v. Bishop Colo. Retail Plaza, L.P., 455
S.W.3d 797 (Tex. App.—Dallas 2015, pet. denied), which it cites as support for
the proposition that, “[w]ith that repeal, the ‘relation-back’ doctrine reemerged to
48
avoid individual liability for pre-forfeiture acts that lead to post-forfeiture
judgments,” although it points to no support for that claim in the Rossman opinion.
Slip Op. at 21–22. Rossman actually stated that the 2008 repeal of the statutory
definition of “debt” in Chapter 171 did not “impact the result” in the case, pointing
out that the statutory definition of “debt” was “very similar to the one [in Seay and
Rogers],” both pre-statutory cases. 455 S.W.3d at 804 (citing Seay, 677 S.W.2d at
23; Rogers, 696 S.W.2d at 676–77). The Rossman court then applied the relation-
back doctrine to preserve a corporate director from liability arising out of corporate
leases entered prior to forfeiture of the corporate charter. Id. (citing Curry, 683
S.W.2d at 112).
The majority finds only one exception to the restoration of the rule of lenity
in construing section 171.255 following repeal of the statutory definition of debt in
Chapter 171 of the Tax Code in 2008: Taylor (discussed above). See 316 S.W.3d
at 867. The majority opines, correctly, that the Fourteenth Court of Appeals
“concluded that the Legislature must have intended to overrule the use of the
‘relation-back’ doctrine in these Section 171.255 cases when it enacted such a
narrow definition of a ‘debt.’” Slip Op. at 21 (citing Taylor, 316 S.W.3d at 865.)
But it further opines that the facts in Taylor (a 2010 case) occurred before the
repeal of the narrow statutory definition in Chapter 171 in 2008, and it brushes
aside the fact that the Taylor court used the narrow definition of debt in deciding
49
this section 171.255 case two years after repeal of the statutory definition. Thus,
with Taylor’s definition of “debt” gone and the relation-back doctrine as it
understands it restored, the majority is free to opine that, “with the repeal of the
narrow definition that led to the Taylor result, courts have again concluded that a
judgment-debt is created or incurred when the conduct or contract occurs, even if,
at that point, the obligation remains unliquidated.” Slip Op. at 23 (emphasis
added).
It is true that Taylor rejected the relation-back doctrine, but what it actually
did was to reject the application of the doctrine in that case to relieve a corporate
officer of liability for acts of wrong-doing that occurred prior to forfeiture but were
reduced to a money judgment after forfeiture. See 316 S.W.3d at 869 (concluding
that “the relation-back doctrine should not be applied in this case” and overruling
issue premised on its applicability). Taylor is thus exactly in line with all those
courts that have strictly construed the term “debt” as used in section 171.255 to be
an enforceable liquidated obligation and that have used the relation-back doctrine
to save from liability for corporate debt those non-culpable corporate officers who,
acting within the scope of their duties, created or incurred an unliquidated but
legally enforceable obligation of the corporation prior to forfeiture of the corporate
charter, while rejecting the use of the relation-back doctrine to save corporate
50
officers from personal liability for liquidated corporate obligations incurred after
forfeiture because of wrongful acts of the corporation prior to forfeiture.
Finally, the majority cites, as support for its construction of section 171.255,
Willis v. BPMT, LLC, 471 S.W.3d 27 (Tex. App.—Houston [1st Dist.] 2015, no
pet.), a recent case from a panel of this Court, for “concluding that [the] debt on [a]
lease agreement need not be for [a] sum certain, thus rejecting [the] repealed,
narrow ‘debt’ definition in favor of [a] construction that favored [the] party facing
[the] penalty.” Slip Op. at 22. And it claims, “We are bound by these precedents
from this Court.” Id. at 10. Actually, while Willis’s reasoning is similar to that of
the majority in this case, and is, therefore, in my view, incorrect, its application of
the law nevertheless illustrates the appropriate application of the relation-back
doctrine, hence the continuing vitality of that doctrine since its development in
Curry.
Willis involved an action to recover unpaid rent from a corporation under a
lease agreement entered in the ordinary course of business of the corporation well
before forfeiture of its charter. 471 S.W.3d at 27–28. Thus, in Willis, the debt due
on the lease was construed as a legally enforceable monetary obligation even if the
exact amount was not determined until after forfeiture, and the debt related back to
the date the lease was entered and could not be recovered from the corporation’s
officers and directors. See id.; cf. Curry, 683 S.W.2d at 112; see also Cain, 882
51
S.W.2d at 518–19 (construing Curry and its progeny). Thus, the panel correctly
held that the corporate debt related back to the date of the lease and could not be
recovered from the defendant officers and directors. Willis does nothing to support
the majority’s holding in this case that Batzri is not liable for the wrongful acts of
negligent misrepresentation and fraud committed by 7677 against the Hovels prior
to forfeiture of the corporate charter and reduced to a liquidated money judgment
after forfeiture.
The majority, nevertheless, referring to the cases cited above and others,
states, “All of these cases demonstrate application of the rule of strict construction
[by which it actually means the rule of lenity] to protect a party facing a penalty
through a construction of Section 171.255 in that party’s favor.” Slip Op. at 22.
But this is not the case. Contrary to the majority’s claims, Texas courts have never
followed its conception of either the strict construction rule applicable to section
171.255 or the relation-back doctrine. And no other courts have held that all
repealed statutes fall irretrievably into oblivion and that they are free to redefine
the term “debt” in section 171.255 because the legislature repealed the statutory
definition for that term in Chapter 171 in connection with broadening the tax base
for businesses. Rather, the courts, almost without exception, have followed
Schwab, Curry, and Cain as they really are. And, under that law, this case falls
squarely within the scope of those cases in which the courts have held that the
52
relation-back doctrine does not apply and section 171.255 does apply—namely,
those cases in which a tax, penalty, or money judgment is incurred by a
corporation after forfeiture of its corporate charter as a result of wrongful acts of
the corporation either before or after forfeiture. Following its own lead, the
majority rejects this conclusion.
F. The Result of the Majority’s Analysis of Section 171.255
The majority’s reconstruction of the law interpreting section 171.255 leads it
to conclude that 7677’s debt to the Hovels “was created or incurred pre-forfeiture”
and that Batzri is not liable for it. Id. at 27. Nevertheless, despite all it has done to
justify its vision of the law, the majority still can find no support for its conclusion
among published cases. Therefore, it relies on an unpublished 1998 case with no
petition for review, Ballard v. Quinn, No. 14-97-01057-CV, 1998 WL 787558, at
*2 (Tex. App.—Houston [14th Dist.] Sept. 10, 1998, no pet.) (mem. op., not
designated for publication), as “persuasive” authority for its holding that Batzri is
not liable to the Hovels under section 171.255 for 7677’s judgment debt.
Rather than review the majority’s recitation of Ballard, I merely note that—
in a footnote several pages before setting out the “similarities between the Hovels’
claim and the one pursued in Ballard”—the majority states, “We recognize, of
course, that Ballard lacks precedential value. But,” it continues, “as we explain,
there are numerous similarities between the Ballard case and this one, and we
53
believe the analysis is persuasive.” Slip Op. at 19 n.13. Thus, the majority
effectively decides to disregard the clear statement in the Rules of Appellate
Procedure that “opinions issued prior to the 2003 amendment [to Rule 47,
governing publication of appellate opinions] . . . and affirmatively designated ‘do
not publish’ should be considered ‘unpublished’ cases lacking precedential value,”
and to assign “persuasive” value to Ballard as its ultimate authority for its holding
absolving Batzri from liability to the Hovels. See Slip Op. at 26–27; see also
“Notes and Comments” following TEX. R. APP. P. 47.2.
Thus, disregarding Rule 47.2, the historically narrow construction of the
terms of section 171.255, the rule of law governing statutes repealed as part of
inapplicable amendments as expressed in Energy Services Co., the purpose of
section 171.255 as expressed in Schwab, and the historical development of the
“strict construction” rule set out in Schwab and of the relation-back doctrine set out
in Curry and explained in Cain, the majority finds Ballard controlling. It
concludes,
Applying the rule of strict construction and utilizing the Supreme
Court’s definition of the terms “created” and “incurred” from Schwab,
we conclude that the debt evidenced by the default judgment obtained
by the Hovels against 7677 was created or incurred pre-forfeiture at
the time that the parties established their contractual and other
obligations and, as such, Batzri is not individually liable for the
entity’s debt.
54
Slip Op. at 27. Every part of this statement is legally unfounded. Nevertheless, the
majority takes its statement to its logical conclusion and then adds, “Finally, even
if we were to consider public policy, we would reject the Hovels’ contention that
this interpretation is misguided.” Id. at 28. Rather, it claims, “public policy
supports broadly construing ‘created or incurred’” and, of course, “debt.” Slip Op.
at 28.
G. The Consequences of Ignoring Reality
I find the majority’s opinion and holding so divergent from the mainstream
of legal construction and precedent, so diametrically opposed to the purpose of the
statute and the public policy of this state as expressed in Schwab and reiterated in
its progeny, and so far from accurately presenting the law that I have nothing to
say in conclusion other than to summarize the departures of the majority opinion
from precedent and to note the consequences of this decision.
First, the strict construction of “debt . . . created or incurred” in Schwab and
all subsequent section 171.255 cases, and the development of the relation-back
doctrine traceable to Curry and Cain have long enabled courts to draw the
distinctions necessary in a section 171.255 case to characterize the “debt” for
which a plaintiff seeks to hold an officer or director of a defunct corporation liable
as either wrongfully or lawfully “created” or “incurred.” They enable courts to
distinguish (1) enforceable financial obligations of a corporation created or
55
incurred by corporate officers acting within the scope of their duties before
forfeiture of a corporate charter, for which corporate officers may not be held
personally liable under section 171.255 and the relation-back doctrine, even if the
obligations are not liquidated until after forfeiture and (2) enforceable liquidated
financial obligations of the corporation created or incurred after forfeiture of the
corporate charter as a result of wrongful acts of the corporation that occurred either
before or after forfeiture, for which section 171.255 makes culpable officers and
directors of the corporation personally liable. Thus, they enable courts to
determine whether or not their application of the statute will “prevent wrongful
acts of culpable officers of a corporation . . . for the protection of the public and
particularly those dealing with the corporation.” See Schwab, 198 S.W.2d at 81–
82 (stating purpose of statute).
Correctly construed in accordance with its purpose, section 171.255 transfers
liability for a liquidated obligation incurred by a corporation after forfeiture of its
charter as a result of wrongful acts of the corporation to the corporation’s officers
and directors with knowledge of the wrongful acts, but it does not transfer personal
liability to corporate officers and directors for liquidated obligations incurred after
forfeiture as a result of enforceable obligations of the corporation created by
corporate officers acting within the scope of their duties prior to forfeiture. See
TEX. TAX CODE ANN. § 171.255; Schwab, 198 S.W.2d at 81. Under that law,
56
liability for the judgment debt incurred by 7677 in favor of the Hovels after
forfeiture of its charter for its acts of fraud and negligent misrepresentation prior to
forfeiture should be transferred to Batzri, 7677’s only officer and director.
On the majority’s reading of section 171.255, however, if a corporation is
held liable in a money judgment incurred after forfeiture of its corporate charter for
its wrongful acts, the judgment cannot be enforced against the principals and
officers of the corporation because the debt was “created or incurred” when the
bad acts took place—prior to forfeiture. This is the exact opposite of the intent of
section 171.255, which is to prevent the principals of a corporation from using
forfeiture of a corporate charter to avoid liability for wrongful acts of the
corporation, as Batzri seeks to do here. See Cain, 882 S.W.2d at 519–20 (in which
defendant likewise “contend[ed] for a liberally expanded interpretation of the
words ‘debt’ and ‘create,’” which court rejected as incompatible with all prior case
law, starting with Schwab, and with purpose of statute). And it results in the
exactly opposite conclusion from established law.
Second, the distinctions made by the case law through the application of the
“strict construction” rule of Schwab and the relation-back doctrine of Curry allow
courts to harmonize the subsections of section 171.255 to effectuate the purpose of
the statute. Under partnership law, incorporated into subsection 171.255(b),
partners in a partnership are generally liable for the debts of the partnership. See
57
TEX. TAX CODE ANN. § 171.255(b); U.S. Rest. Props., 104 S.W.3d at 293 (partners
are jointly and severally liable for debts of general partnership). Under corporate
law, corporate officers are protected by the corporate shield afforded by the
corporate charter from personal liability for debts of the corporation created or
incurred in the exercise of their duties, and are no longer protected once the shield
is forfeited. See TEX. TAX CODE ANN. § 171.255(a); Portlock, 852 S.W.2d at 582.
But a corporate officer may be held individually liable for the tortious conduct of a
corporation in which he knowingly participates or of which has knowledge. TEX.
TAX CODE ANN. § 171.255(a); Leyendecker & Assocs., 683 S.W.2d at 375. The
three subsections of section 171.255, read together and harmonized, as required by
Texas law, provide that officers and directors of a corporation that has forfeited its
charter may be held jointly and severally liable for the liquidated debts of the
corporation incurred after the corporate charter and corporate shield are forfeited,
but only insofar as they had knowledge of or participated in wrongful acts of the
corporation giving rise to the debt.
The majority, however, ignores subsections 171.255(b) and (c), which
provide that only a director or officer of a corporation with culpable knowledge of
a corporate debt “created or incurred” after forfeiture may be held liable under
section 171.255 “in the same manner and to the same extent as if the director or
officer were a partner and the corporation were a partnership.” See TEX. TAX
58
CODE ANN. § 171.255(b), (c). And it ignores the strict construction rule that
requires that the terms of section 171.255 be narrowly construed so that corporate
officers are held personally liable only for those debts of the corporation incurred
after forfeiture of the corporate charter as a result of wrongful acts of the
corporation of which they had knowledge. It simply writes subsections 171.255(b)
and (c) out of the statute in favor of applying the rule of lenity it has chosen as its
own rule of construction, just as it fails to harmonize the terms of the statute, in
violation of the genuinely applicable canon of construction requiring that all parts
of a statute be rendered meaningful by a court’s construction and application of it.
See TEX. GOV’T CODE ANN. § 311.021.
The majority holds that corporate officers and directors may not be held
liable for wrongful acts of the corporation of which they have knowledge that were
committed prior to forfeiture because the “debt” was created when wrongful acts—
such as fraud or misrepresentation—occurred and not when an enforceable legal
obligation was incurred by the corporation after forfeiture as a result of those acts.
Thus, under the majority’s construction of section 171.255, a corporate officer
cannot be held personally liable for the fraud or misrepresentation after forfeiture
of the corporate charter, even though a partner would be personally liable for such
acts committed by a partnership and even though the purpose of the statute requires
that all terms and parts of the statute be given effect and harmonized.
59
Third, the majority substitutes an inapplicable and essentially obsolete canon
of construction of ambiguous criminal statutes—the rule of lenity—for the rule of
strict construction promulgated in Schwab for construing this unambiguous civil
statute, in contradistinction to all prior case law. And it declares that it is not
bound by any law in defining “debt” in section 171.255, contrary to Texas
Supreme Court instruction. These actions result in the substitution of an
unprecedented and extremely broad redefinition of the term “debt” in section
171.255 as including unliquidated potential obligations of a corporation rather than
the narrow definition of “debt” as an enforceable liquidated obligation of the
corporation used historically, and they undermine the rationale for the development
of the relation-back doctrine.
In sum, the majority opinion deprives both this Court and any future court
that adopts its redefinition of the operative terms in section 171.255 of all the
precedential case law strictly construing a “debt” for purposes of section 171.255
as a legally enforceable obligation to pay money. It deprives the Court of
precedential case law relying upon the relation-back doctrine to distinguish among
(1) debts lawfully created or incurred as enforceable obligations by a corporation
that subsequently forfeits its charter, as to which no personal liability may be
imposed on corporate officers and directors after forfeiture; (2) new debts incurred
or created after forfeiture by officers with knowledge of the post-forfeiture debts,
60
for which the officers or directors may be held personally liable; and (3) judgment
debts or penalties incurred by a corporation for wrongful acts of the corporation
that occurred prior to forfeiture but were not reduced to a legally enforceable
obligation until after forfeiture, for which officers and directors with knowledge of
the acts can be held personally liable. It creates division between this Court and all
others. And, in so doing, it destroys the consistency and reliability of the law.
The consequences of the majority’s ignoring legal reality are both perverse
and severe. The majority opinion, therefore, in my view, has the potential to do
much damage to established law.
61
Conclusion
I conclude that the conditions of Texas Tax Code section 171.255 for finding
a corporate officer or director personally liable for the debts of a corporation that
has forfeited its corporate charter were met in this case. Therefore, I would reverse
the summary judgment of the trial court in favor of Batzri, and I would render the
judgment the trial court should have rendered on the Hovels’ summary judgment
motion, holding Batzri personally liable for the money judgment entered by the
trial court against 7677 in favor of the Hovels.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Higley, and Brown.
Keyes, J., dissenting.
62