21 Jun Texas Supreme Court Reverses A Default Judgment Because The Proper Party Was Not Served With Process
The importance of serving process of a lawsuit on the proper party, especially a legal entity, took a front row seat last week in the Texas Supreme Court. On June 18, 2021, the Texas Supreme Court issued its opinion in No. 20-0173 WWLC Investment, L.P. v. Sorab Miraki, reversing a default judgment granted against a Texas limited partnership because the plaintiff in the lawsuit did not serve the original petition on the proper party for service under the Texas Business and Commerce Code.
Miraki had been a tenant of a commercial property owned by WWLC Investment, a limited partnership, and after being evicted by WWLC Investment for a number of issues, Miraki sued WWLC for breach of lease, fraud, and violations of the Texas Deceptive Practices Act, Tex.Bus & Com Code ch 17. Miriaki’s tried numerous times to serve the individual that had executed the lease as President of WWLC, and ultimately served that individual under an order of substituted service, which is an alternative way to serve process approved by a court when an individual cannot be located, and service has been attempted but unsuccessful numerous times. Pursuant to the substituted service order, the individual was considered served with process and Miraki obtained a default judgment against WWLC because it did not answer the lawsuit.
Miraki made no attempt to serve WWLC through its registered agent or its general partner, which would prove to be an important factor for the Texas Supreme Court.
Once WWLC learned of the default judgment, it appealed the default judgement through the courts, and ultimately landed with the Texas Supreme Court, who reversed the default judgment on the basis that Miraki did not accomplish proper service of WWLC Investment.
Service on a limited partnership is only effective if made on its general partner or its registered agent. Tex. Bus. Org. Code §§ 5.201(b)(1), 5.255(2). The evidence presented to the Texas Supreme Court established that the individual served in the case was neither the general partner nor the registered agent, even though the individual that was served was an admitted officer of the limited partnership. Service on a limited partnership, unlike a corporation, is not authorized to be made through an officer. See id. Section 5.255(1)-(2).
“For well over a century, this court has required that strict compliance with the rules for service of citation affirmatively appear on the record in order for a default judgment to withstand direct attack. There are no presumptions in favor of valid issuance, service, and return of citation in the face of a [direct] attack on a default judgment.” Primate Constr., Inc. v. Silver, 884 S.W.2d 151, 152 (Tex. 1994) (per curiam)(citations omitted).
While determining the general partner of a limited partnership may take some effort, determining the registered agent of a Texas legal entity is fairly easy. Every entity formed and operating in Texas is required to have an appointed registered agent (and registered office where the registered agent can be served) Tex. Bus. Org. Code §5.201(a), both of which can be found at the Texas Secretary of State or Texas State Comptroller, through their online databases or a phone call to the agencies.
The Texas Supreme Court made clear reference to the fact that Miraki made no attempt to serve process on the general partner or registered agent of WWLC. While the information was easily accessible, Miraki only attempted service on the individual that it perceived to be the proper representative of the limited partnership. That reliance proved fatal to its default judgment.
For those interested, here are the acceptable parties that may be served with process for all types of legal entities (found in Tex. Bus. Org. Code § 5.255):
- Corporation – Registered Agent, President and each Vice-President
- Limited Partnership – Registered Agent or General Partner
- Limited Liability Company – Registered Agent and each Manager of a manager-managed entity or each Member of a member-managed entity
- Entity other than (1) – (3) above – a governing person of the entity
- Nonprofit Corporation – Registered Agent and each member of a committee that is authorized to perform the chief executive function of the nonprofit corporation.
As can be understood from this opinion, it is vital to serve the appropriate person when serving an entity. Here at Rapp & Krock, PC, we serve as registered agents for most of our entity clients, and regularly receive service of process. While most do not relish being a party to a lawsuit, our clients appreciate our role as registered agent so that service occurs at our office, away from their workplace, and we are equipped to respond to an action once we are served on your behalf.
ABOUT THE AUTHOR: Bradley W. Rapp is a Shareholder at Rapp & Krock, PC in the Business Transactions group.
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