After declining to grant review last June, the Texas Supreme Court has granted a motion for rehearing filed by defendants who took a default judgment resulting from allegedly ineffective service by the Texas Secretary of State.
Huffman Asset Management, LLC and Prairie Capital, LLC v. Maurice Colter and Ni-Ida Conter (No. 24-0205; rehearing granted January 31, 2025) arose from a residential lease dispute. After being assured that the apartment units in the complex “were not prone to insect infestations” and that the landlord would “address any issues ‘with immediate and regular steps to eliminate’” the pests, the Colters signed the lease, only to find the apartment infested with roaches. They eventually sued the apartment complex owner and manager, asserting DTPA, fraud, non-disclosure, and negligence claims, as well as additional claims against Prairie for “wrongful retention of their security deposit and breach of the lease.” The problems began when the Colters attempted to serve Defendants both at two different addresses. Following several unsuccessful attempts, the Colters amended their petition to state that despite using reasonable diligence, they couldn’t find Defendants and thus effected service on the Secretary of State as Defendants’ agent for service. The SOS confirmed that its office received the citation and amended petition and forwarded a copy of them by certified mail return receipt requested Huffman’s registered agent at the address on record. Service, however, was returned. SOS tried again ten days later and received the same result.
At that point the Colters filed a motion for entry of a default judgment and moved for entry of judgment, which the trial court signed. The trial court awarded the Colters about $2,700 in property damage, DTPA damages of $15,424, damages and statutory penalties for wrongful retention of their security deposit, about $4,600 in attorney’s fees, and $5,000 each for mental anguish. It sent Defendants notice of default judgment to the same address the Colters used in their first amended certificates of last-know mailing addresses. About a month later, Defendants filed a motion to transfer venue and motion for new trial, which the Colters opposed. After a hearing, the trial court signed an order denying the motion for new trial and determined that the motion to transfer venue was moot. Defendants appealed.1
In an opinion by Justice Partida-Kipness, the court of appeals affirmed in part and reversed in part. Defendants argued that the Colters did not comply with the requirements for service of process because service on the SOS was invalid. The Colters, they asserted, failed to use the address of Defendants’ principal place of business, “the only proper address for service because it is ‘the most recent’ address for both entities on file with the Secretary of State pursuant to § 5.253(b), Business Organizations Code. The court, however, determined that the Colters’ process server attempted to serve Defendants at the registered office addresses on file with the Secretary of State, as well as at the registered agent’s address in the SOS file. Observing that the server further tried to find Defendants at a third address, an apartment building to which he could not gain access, the court concluded that the Colters exercised reasonable diligence and were entitled to use substitute service on the SOS.
Turning to the issue of the effectiveness of service, the court had to construe § 5.253, which requires the SOS’s notice of process be “addressed to the most recent address of the entity on file” with the SOS, “regardless of whether that address is where the registered agent may be served. They pointed to the predecessor statute, art. 2.11(B), Business Corporations Act, which required the SOS to forward service “addressed to the corporation at its registered office.” According to Defendants, § 5.253 changed prior law by removing the requirement that the SOS serve an entity at its registered office and directing service at “the most recent address of the entity on file with the SOS.” The court rejected this argument, concluding that when read together, §§ 5.251., .252, .253, and other sections require a corporation to “maintain a registered agent and registered office for service of process and keep the addresses of both updated with the Secretary of State.” Observing that an entity’s principal place of business “is not equivalent fo the entity’s address for service of process,” the court stated that the “statute provides no basis for requiring the Secretary of State to forward notice to anyone other than the entity’s registered agent at the entity’s registered office.” Section 5.253 “most recent address of the entity on file” language “necessarily means the most recent address of the entity’s registered agent and registered office for service of process.” Here the SOS certifications of returned service “constitute[d] conclusive proof that” the SOS complied with the law as Defendants’ substitute agent for service.
There are other issues in the case, but Defendants’ motion for rehearing at SCOTX focuses on the issue of whether the Legislature changed the law when it recodified old art. 2.11(B) in the new Chapter 5, Business Organizations Code. Presumably, that is what SCOTX will have to decide.
