OAG Fights to Keep 160-Year-Old Limitations-Tolling Statute

According to state Supreme Court Justice Scott Brister’s concurring opinion, Vaughn was wrongly decided. Brister wrote:

Our “absent from the state” statute arose in 1841, a long time before minimum-contacts analysis did; as almost every other state has decided, a person whose minimum contacts make them amenable to suit in a state cannot fairly be said to be “absent from the state.” Indeed, such a construction would face serious constitutional problems.

Justices Nathan Hecht, David Medina and Don Willett joined Brister in the concurring opinion.

In its brief to the Supreme Court, the OAG notes that §16.063 applies to Texas residents and nonresidents who incur obligations while they are in Texas. As further noted in the brief, Texas residents are always subject to personal jurisdiction in the courts of this state, and nonresidents who incur obligations in Texas will satisfy the minimum-contacts test and be subject to personal jurisdiction in Texas. As a result, according to the OAG’s brief, the tolling effect of §16.063 will never be triggered.

The OAG argues that Kerlin‘s result contravenes two established canons of statutory construction: The Texas Legislature is never presumed to do a useless act, and a court must not interpret a statute in a manner that renders any part of it meaningless. As a remedy, the OAG urges the state Supreme Court to revise its construction of §16.063 to hold that the statute still applies when a defendant cannot be found for service.

Andrew Frey, an attorney for the Kerlin defendants, says, “We’re not terribly concerned about it,” when asked about the OAG’s motion for rehearing.

Frey, a partner in Mayer, Brown, Rowe & Maw in New York City, says if the state Supreme Court revises its opinion, the court probably would still leave §16.063 inapplicable to Kerlin.

Jules L. Laird Jr., of the Law Firm of Jules L Laird Jr. in Houston, appellate attorney for the plaintiffs, did not return three telephone calls seeking comment before presstime on Sept. 25.

According to the clerk’s office at the state Supreme Court, the plaintiffs had not filed a motion for rehearing in Kerlin before presstime.

Invalidating §16.063

At issue in Cadles, according to the 5th Circuit’s opinion, is debt that David and Robert Goldner, partners in Equivest Properties, a Texas general partnership, incurred in the 1980s. The opinion, written by Judge Jerry Smith, provides the following background: The Goldners agreed to guarantee $2.7 million in Equivest’s debt to Olney Savings Association, but they left Texas in 1988 without fully paying that debt. Olney, doing business as AmWest Savings Association, sued Equivest and the Goldners in a Texas state court in 1992 and obtained a judgment against them in 1994. But Equivest was defunct, and the state court granted the Goldners’ motion to void the judgment against them. In 2004, Cadles acquired all interest in the debt and judgment and sued the Goldners in state court in 2006. The Goldners removed the suit to the U.S. District Court for the Northern District in Dallas, where they argued that Cadles’ claim is barred by limitations, because the Texas tolling provision violates the dormant commerce clause. The state intervened to defend the statute’s constitutionality. In 2007, U.S. District Judge Barbara Lynn found the tolling statute unconstitutional and deemed Cadles’ suit to be time-barred. Cadles appealed to the 5th Circuit.

Smith noted in the 5th Circuit’s opinion that the U.S. Supreme Court determined in Bendix that the Ohio tolling statute, which is similar to §16.063, burdened persons and businesses outside of Ohio. In Bendix, the Supreme Court determined that under the Ohio statute, an out-of-state business could establish a presence in Ohio by appointing a resident agent for service of process in that state, but doing so would subject that business to the jurisdiction of the courts in that state. According to the Bendix opinion, the Ohio statute forced an out-of-state business to choose between exposure to the general jurisdiction of the courts in that state or forfeiting the statute of limitations defense.

As noted in the 5th Circuit’s opinion in Cadles, the OAG argued that an out-of-state defendant can appoint a resident agent and not be subject to the state’s general jurisdiction. Smith wrote that the OAG suggested that the Goldners could have included an appointment of an agent to accept service in the contract for the debt. But, as Smith noted, Texas courts have never addressed whether designating a resident agent in debt agreements can avoid tolling. That remains an open question, according to the opinion.

“So long as that is so, it would be mistaken to say that the Goldners were unburdened by the tolling provision just because they could have done something the Texas courts might — or might not — in the future deem sufficient to avoid tolling,” Smith wrote. Judges Eugene Davis and Harold DeMoss Jr. joined Smith in the decision.

In invalidating §16.063, the 5th Circuit concluded that the burden the Texas statute imposes on the Goldners is at least as great as the burden the Ohio statute imposed in Bendix.

The OAG argues in its motion for rehearing to the 5th Circuit that if the state Supreme Court revises its decision in Kerlin so that the statute still applies when a defendant cannot be found for service of process, that will resolve the 5th Circuit’s concerns about the statute.

Charles “Rocky” Rhodes, a South Texas College of Law professor and state constitutional law scholar, says he thinks the state Supreme Court’s decision in Kerlin makes sense. Rhodes, who says he has studied §16.063 and talks about the statute in his classes, points out that the Supreme Court tried to narrow what the statute does to avoid constitutional problems.

Rhodes says it is pretty unlikely that the state Supreme Court will revise its decision, as suggested by the OAG. But he says the 5th Circuit just might take another look at Cadles, in light of the state Supreme Court’s interpretation of the statute.

Notes Rhodes: “The interpretation of state law is a state law issue, so the Texas Supreme Court is the highest authority on the meaning of §16.063.”