Santex Builders, LLC and Curtis R. Medlin v. Guefen Construction, LLC ( 2009 )

Reversed and Remanded and Memorandum Opinion filed December 15, 2009.

In The

Fourteenth Court of Appeals

NO. 14-08-00840-CV

Santex Builders, LLC and Curtis R. Medlin, Appellants

V.

Guefen Construction, LLC, Appellee

On Appeal from the 165th District Court

Harris County, Texas

Trial Court Cause No. 2008-26113

MEMORANDUM  OPINION

Santex Builders, LLC (“Santex”) and Curtis R. Medlin appeal the trial court’s final default judgment in favor of Guefen Construction, LLC (“Guefen”) and the trial court’s order denying their motion to set aside default judgment and alternative motion for new trial.  Because we conclude service of process was defective, we reverse and remand.

Background

Guefen was awarded a contract to construct the Presidio Apartments in San Antonio, Texas, and signed a subcontract with Santex for Santex to perform grading and asphalt-paving work on the project.  Curtis R. Medlin, Santex’s operations manager, signed the contract on behalf of Santex.  Three months later, Guefen filed an original petition against Santex and Medlin alleging fraud and breach of contract.

At issue in this case is service of process.  The citation for Santex is addressed to “Santex Builders LLC (Texas Limited Liability Corporation) by serving its registered agent Roberts W Tharp Jr wherever he may be found or 18160 US Highway 281N Suite 108-314” in San Antonio.  The officer’s return for certified mail states that it was executed at the address by mailing to Santex Builders; by serving registered agent Robert W. Tharp Jr.; and by delivering to Daniel G. Ortiz by certified mail with delivery restricted to addressee only.  The certified mail receipt shows that Daniel G. Ortiz signed for the delivery on May 7, 2008.  The box for restricted delivery is not checked; neither is the box “Agent” or “Addressee.” The citation for Medlin is to “Medlin, Curtis R wherever he may be found or 18160 San Pedro Avenue Suite 108-314” in San Antonio.  The officer’s return for certified mail and the certified mail receipt show the mail was delivered to and signed by Daniel G. Ortiz.  As with the certified mail receipt for Santex, the box for restricted delivery is not checked and neither is the box “Agent” or “Addressee.” 

Guefen moved for final default judgment against Santex and Medlin.  The trial court granted the motion, finding that Santex and Medlin properly were served and failed to answer or otherwise appear.  The court awarded actual damages in the amount of $815,207.71, pre-judgment interest in the amount of $5,226.26, attorneys’ fees against Santex in the amount of $9,650 plus conditional attorneys’ fees in the event of appeal to the court of appeals and Texas Supreme Court, costs, and post-judgment interest. Santex and Medlin filed a motion to set aside the default judgment and alternative motion for new trial, arguing the default judgment was void for improper service of process or, alternatively, on equitable grounds set forth in Craddock v. Sunshine Bus Lines, 134 Tex. 388, 133 S.W.2d 124 (1939). Attached to the motion were affidavits from Tharp and Medlin stating that (1) they found out about the lawsuit from a general contractor when the general contractor was served with a writ of garnishment; (2) the service filed by Guefen was delivered to an old address; (3) the mailbox at the old address was paid for until April 30, 2008, when it was cancelled and any mail was returned as undelivered; and (4) they do not know Daniel Ortiz.  The trial court denied the motion.   

Analysis

In its first issue, Santex[1] contends the trial court erred in denying its motion to set aside the no-answer default judgment because the service of citation was defective.  Specifically, Santex argues that the return receipts were signed by someone other than the addressees as required by Texas Rule of Civil Procedure 107.  In its second issue, Santex contends the trial court erred in denying the motion for new trial because Santex satisfied the Craddock elements.  See Craddock, 134 Tex. 388, 133 S.W.2d at 126 (requiring new trial if defendant shows (1) default was neither intentional nor the result of conscious indifference, (2) meritorious defense, and (3) new trial would cause neither delay nor undue prejudice). 

A trial court’s decision to overrule a new trial motion is subject to review for abuse of discretion.  In re R.R., 209 S.W.3d 112, 114 (Tex. 2006) (per curiam).  Santex is appealing after it filed a “Motion to Set Aside Default Judgment and Alternative Motion for New Trial,” which was denied.  When a default judgment is attacked by a motion for new trial or bill of review,[2] the “parties may introduce affidavits, depositions, testimony, and exhibits to explain what happened.”  Fid. & Guar. Ins. Co. v. Drewery Constr. Co., 186 S.W.3d 571, 573-74 (Tex. 2006).  This allows the parties, in the trial court, to address the critical question in a default judgment:  “Why did the defendant not appear?”  Id. at 574.  If the answer is “Because I didn’t get the suit papers,” the default judgment generally must be set aside, except when nonreceipt is uncorroborated or it was a bill-of-review claimant’s fault.  Id. If the defendant received the suit papers, the inquiry continues to the Craddock elements.  Id. 

Here, Santex contends that service of process was defective.  A trial court’s jurisdiction is dependent upon citation issued and served in a manner provided for by law.  Wilson v. Dunn, 800 S.W.2d 833, 836 (Tex. 1990).  Unless the record affirmatively shows an appearance by the defendant, proper service of citation, or a written waiver of service at the time the default judgment is entered, a trial court does not have in personam jurisdiction to enter the default judgment.  See id. at 837.  A default judgment is improper against a defendant who has not been served in strict compliance with the law.  Id. 

Under Texas Rule of Civil Procedure 106, “[u]nless the citation or an order of the court otherwise directs, the citation shall be served . . . by mailing to the defendant by . . . certified mail, return receipt requested, a true copy of the citation with a copy of the petition attached thereto.”  Tex. R. Civ. P. 106(a)(2).  Rule 107 states that “[w]hen the citation was served by . . . certified mail as authorized by Rule 106, the return by the officer . . . must also contain the return receipt with the addressee’s signature.”  Tex. R. Civ. P. 107.  If the return receipt is not signed by the addressee, the service of process is defective.  See Sw. Sec. Servs., Inc. v. Gamboa, 172 S.W.3d 90, 93 (Tex. App.—El Paso 2005, no pet.) (service defective when return receipt signed by someone other than addressee); Ramirez v. Consol. HGM Corp., 124 S.W.3d 914, 916 (Tex. App.—Amarillo 2004, no pet.) (same); All Commercial Floors, Inc. v. Barton & Rasor, 97 S.W.3d 723, 727 (Tex. App.—Fort Worth 2003, no pet.) (same); Keeton v. Carrasco, 53 S.W.3d 13, 19 (Tex. App.—San Antonio 2001, pet. denied) (same); Webb v. Oberkampf Supply of Lubbock, Inc., 831 S.W.2d 61, 64 (Tex. App.—Amarillo 1992, no writ) (same); Am. Universal Ins. Co. v. D.B.&B., Inc., 725 S.W.2d 764, 765-67 (Tex. App.—Corpus Christi 1987, writ ref’d n.r.e.) (same); Pharmakinetics Lab., Inc. v. Katz, 717 S.W.2d 704, 706 (Tex. App.—San Antonio 1986, no writ) (same).             

The officer’s returns for certified mail and the return receipts reflect the addressee for Santex was Santex Builders by serving registered agent Robert W. Tharp Jr.; the addressee was Curtis R. Medlin for Medlin.  The officer’s returns for certified mail and the return receipts show Daniel G. Ortiz signed for both Santex Builders and Medlin.  Daniel Ortiz was not the addressee; therefore, the service of process was defective. 

Guefen contends Santex made Daniel Ortiz a de facto agent when Santex selected a postal facility as its registered address.[3] Under article 2.09 of the Texas Business Corporations Act, a corporation shall have and continuously maintain in this state a registered office and a registered agent.  Tex. Bus. Corp. Act Ann. art. 2.09, § A(1)-(2) (Vernon Supp. 2009).  A corporation may appoint an individual resident, domestic corporation, or other qualified entity as a registered agent.  See id. art. 2.09, § A(2).  However, Santex did not appoint the postal facility as its registered agent; it appointed Robert W. Tharp, Jr. as its registered agent.  Guefen’s original petition acknowledges Tharp as Santex’s agent.

Guefen also relies on this court’s opinion in Houston’s Wild W., Inc. v. Salinas,  690 S.W.2d 30, 32 (Tex. App.—Houston [14th Dist.] 1985, writ ref’d n.r.e.).  Guefen cites Salinas for the proposition that a corporation assumes the risk of not receiving notices when it elects to maintain a private postal box as its registered address in lieu of an actual location where the registered agent himself may be found.  In Salinas, Salinas attempted personal service and service by certified mail to a post-office box.  Id. at 31.  When her attempts failed, she obtained permission from the trial court for substituted service on the Secretary of State.  Id.  Article 2.11 of the Texas Business Corporations Act states:

Whenever a corporation shall fail to appoint or maintain a registered agent in this State, or whenever its registered agent cannot with reasonable diligence be found at the registered office, then the Secretary of State shall be an agent of such corporation upon whom any such process, notice, or demand may be served.

Tex. Bus. Corp. Act art. 2.11, § B (Vernon Supp. 2009).  The Secretary of State then forwards the process, notice, or demand by registered mail to the corporation’s registered office.  Id. The court held that Salinas complied with article 2.11 and service through the Secretary of State was proper.  Id. at 32.  The corporation assumed the risk of not receiving notices after proper service on the Secretary of State.  See id. at 32.

In this case, Guefen did not seek substituted service on the Secretary of State pursuant to article 2.11.  Nor did Guefen seek substituted service under Texas Rule of Civil Procedure 106.  See Tex. R. Civ. Proc. 106(b) (upon motion supported by affidavit, the court may authorize service in another manner).  Therefore, the reasoning in Salinas does not apply here.  Guefen’s contention that Santex assumed the risk of not receiving notice because it failed to update its address with the Secretary of State also is without merit.  Again, the cases cited by Guefen involve proper service on the Secretary of State first, which Guefen did not accomplish here. See Campus Invs., Inc. v. Cullever, 144 S.W.3d 464, 465-66 (Tex. 2004) (holding service on Secretary of State proper; Campus could not complain about not receiving forward from Secretary of State after proper service because it did not update address); Tankard-Smith, Inc. Gen. Contractors v. Thursby, 663 S.W.2d 473, 475-76 (Tex. App.—Houston [14th Dist.] 1983, writ ref’d n.r.e.) (same).        

Guefen contends that Santex cannot complain about defective service because Guefen attempted to mail the motion for default judgment and notice of hearing to Santex’s new address, but the documents were returned unclaimed after multiple delivery attempts.  Guefen also cites nonworking fax and phone numbers.  The Texas Supreme Court has held that a “default judgment is improper against a defendant who has not been served in strict compliance with law, even if he had actual knowledge of the lawsuit.”  Wilson, 800 S.W.2d at 837.  Therefore, even if Santex received Guefen’s motion for default judgment and notice of hearing, actual notice, without proper service, is not sufficient to confer jurisdiction on the trial court.  Id. at 836.

We sustain Santex’s first issue.  Service on Santex and Medlin was defective under Rule 107 and the default judgment cannot stand. Having disposed of the first issue, we need not address whether the trial court abused its discretion by denying the motion for new trial under the Craddock elements.  Marrot Commc’ns, Inc. v. Town & Country P’ship, 227 S.W.3d 372, 379 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) (holding service was defective, and therefore, not addressing alternative issue of error under Craddock).

Conclusion

We reverse the judgment of the trial court and remand the cause for proceedings consistent with this opinion.

                                                            /s/        William J. Boyce

                                                                                    Justice

Panel consists of Justices Anderson, Seymore, and Boyce.

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[1] The notice of appeal was filed by Santex Builders, LLC and Curtis R. Medlin. In their briefs, the parties refer to Santex Builders, LLC and Medlin collectively as “Santex.”

[2] “A bill of review is an equitable proceeding brought by a party seeking to set aside a prior judgment that is no longer subject to challenge by a motion for new trial or appeal.”  Caldwell v. Barnes, 154 S.W.3d 93, 96 (Tex. 2004). 

[3] Guefen refers to Santex Builders and Medlin collectively as “Santex” and does not differentiate between the two when making its arguments about service of process.  The articles in the Texas Business Corporation Act referenced by Guefen relate only to service upon a corporation through a registered agent.  See Tex. Bus. Corp. Act Ann. arts. 2.09, 2.11 (Vernon Supp. 2009) (dealing with a corporation’s registered office and registered agent and with service of process on a corporation, respectively).  Guefen does not explain how these means of service would apply to Medlin as an individual, nor does it address other means of service applicable to individuals.