the Surrogacy Group, LLC and Greg Blosser v. ROC Funding Group, LLC ( 2018 )

Opinion issued December 6, 2018
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-17-00852-CV
———————————
GREG BLOSSER AND THE SURROGACY GROUP LLC, Appellants
V.
ROC FUNDING GROUP LLC, Appellee
On Appeal from the County Civil Court at Law No. 2
Harris County, Texas
Trial Court Case No. 1085942
MEMORANDUM OPINION
In this restricted appeal, appellants, Greg Blosser and The Surrogacy Group
LLC (collectively, Surrogacy Group), challenge the trial court’s no-answer default
judgment against them. In three issues, Surrogacy Group argues that: (1) the trial
court erred because the record shows that it never received notice of the suit;
(2) the record affirmatively demonstrates that Surrogacy Group has no contacts
with Texas and that the very contract sued upon requires suit to be filed in New
York; and (3) the default judgment is void because the judgment itself does not
recite any findings of service or jurisdiction over the defendants. Because we
conclude that there were defects in the service effected by appellee, ROC Funding
Group LLC, we reverse and remand.
Background
ROC Funding filed its original petition asserting causes of action for breach
of contract, conversion, suit on Blosser’s personal guarantee, and attorney’s fees.
ROC Funding alleged that it is “a corporation that purchases future receipts from
companies like [Surrogacy Group]” and that the parties “executed a Payment
Rights Purchase and Sale Agreement.” The Agreement provided that, “in return
for the purchase amount, [ROC Funding] is entitled to receive a percentage of
[Surrogacy Group’s] future sales or receipts.” ROC Funding asserted that it paid
the purchase price, but Surrogacy Group failed to meet its obligations in paying a
portion of its future receipts as required by the Agreement.
Regarding service, the original petition asserted that the “Defendant(s) may
be served at: The Surrogacy Group, LLC [b]y serving its owner, Greg Blosser, 126
Cathedral Street, Annapolis, MD 21401.” ROC Funding also asserted that service
was “[t]o be served via Texas Secretary of State” at the “office address” set out
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above. The petition also set out basic allegations regarding venue, and stated,
“Moreover, service through the Secretary of State is appropriate because
Defendants do not have a regular place of business, or a designated agent for
service of process, in Texas.”
ROC Funding filed documentation showing that it served citation for both
Blosser and Surrogacy Group in person on the Secretary of State. The return of
service for both Blosser and Surrogacy Group stated:
On the 2nd day of February, 2017 at 1:49 PM, at the address of 1019
Brazos St James E. Rudder Building, Room 105, Austin, Travis
County, TX 78701, United States; this declarant served PLAINTIFFS
ORIGINAL PETITION; CITATION; CIVIL CASE INFORMATION
SHEET upon GREG BLOSSER by then and there personally
delivering per T.R.C.P. Rule 106(b), 1 true and correct copy(ies)
therefor, by then presenting to and leaving the same with Texas
Secretary of State, A VALERIE HARDIN, TEXAS SECRETARY
OF STATE, who accepted service, with identity confirmed by verbal
communication, a black-haired black female approx. 45-55 years of
age, a person over the age of 16 and of suitable discretion who stated
that they reside at the defendant’s/respondent’s usual place of abode
listed above.
The return of citation for Surrogacy Group was substantively identical, except that
it stated that service was made “upon THE SURROGACY GROUP, LLC c/o
TEXAS SECRETARY OF STATE, REGISTERED AGENT by then and there
personally delivering [the citation] per T.R.C.P. Rule 106(b).”
On March 9, 2017, ROC Funding filed a certificate from the Secretary of
State certifying that a copy of the citation and petition “was received by this office
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on February 2, 2017, and that a copy was forwarded on February 6, 2017, by
CERTIFIED MAIL, return receipt requested to: Greg Blosser[,] 126 Cathedral
Street[,] Annapolis, MD 21401.” The certification further stated, “The PROCESS
was returned to this office on February 23, 2017, [b]earing the notation Return to
Sender, Not Deliverable as Addressed, Unable to Forward.”
On March 27, 2017, ROC Funding moved for a continuance “in order to
prepare for trial and also to obtain service.” The record does not contain a ruling
on this motion.
On April 17, 2017, ROC Funding filed another certificate from the Secretary
of State certifying that a copy of the citation and petition “was received by this
office on February 2, 2017, and that a copy was forwarded on February 6, 2017, by
CERTIFIED MAIL, return receipt requested to: The Surrogacy Group LLC[,]
Greg Blosser[,] 126 Cathedral Street[,] Annapolis, MD 21401.” The certification
further stated, “As of this date, no response has been received in this office.”
On June 19, 2017, ROC Funding moved for default judgment. The motion
asserted, “The return of service, filed with this Court, shows that Defendants were
served with a copy of Plaintiff’s Original Petition. The return of service has been
on file for more than ten (10) days.” ROC Funding sought judgment in its favor on
all claims and asked for an award of attorney’s fees. It provided a certificate of last
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known mailing address for Blosser and Surrogacy Group as “126 Cathedral Street”
in “Annapolis, MD 21401.”
ROC Funding attached a copy of the Agreement between it and Surrogacy
Group. This agreement identified the “physical address” for Surrogacy Group as
“126 Cathedral Street” in Annapolis, MD 21401. It also provided that the mailing
address was “839 Bestgate Rd. Ste 400[,] Annapolis[,] MD 21401.” In addition to
the Agreement, ROC Funding provided a record of its transactions with Surrogacy
Group and affidavits of counsel and an ROC Funding corporate representative.
On June 20, 2017, the trial court gave ROC Funding notice that its motion
for default judgment was incomplete, noting that the “affidavit amounts do not
match [the requested] judgment.” The trial court also noted: “Please review your
citation return and make sure that parties are properly named and process server’s
identification number and expiration date are included.” The trial court further
noted, “Rule 106 requirements are that the defendant must also be served by
certified mail and regular mail.”
On June 26, 2017, the trial court signed a final default judgment. 1 The
judgment recited that “[d]efendant, though duly cited to appear and answer, failed
to file an answer within the time allowed by law.” It awarded ROC Funding
1
The judgment recites that it was rendered following a hearing at which ROC
Funding appeared through counsel and that neither Blosser nor Surrogacy Group
appeared. The appellate record does not contain a record of this hearing.
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$112,290.54 in damages, $22,000 in trial-level attorney’s fees, and $22,000 in
conditionally appellate attorney’s fees from defendants The Surrogacy Group and
Greg Blosser.
On July 27, 2017, ROC Funding filed an application for a writ of
garnishment, seeking to garnish Surrogacy Group funds held in the Branch
Banking and Trust Co. (BB&T), listed as being located in Dallas, Texas. BB&T
answered, asking the trial court to “adjudicate all claims to the funds and discharge
BB&T from liability to Garnishor [ROC Funding] and Judgment Debtor
[Surrogacy Group] regarding the funds.” The appellate record does not contain a
ruling on the application for writ of garnishment.
Blosser and Surrogacy Group filed a joint notice of restricted appeal on
November 2, 2017.
Restricted Appeals
Blosser and the Surrogacy Group filed this restricted appeal arguing that the
trial court erred in granting the no-answer default judgment in favor of ROC
Funding.
A. Standard of Review
To prevail in a restricted appeal, Blosser and Surrogacy Group must
establish that they: (1) filed notice of the restricted appeal within six months after
the judgment was signed; (2) were parties to the underlying lawsuit; (3) did not
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participate in the hearing that resulted in the challenged judgment and did not
timely file any postjudgment motions or requests for findings of fact and
conclusions of law; and (4) error is apparent on the face of the record. See TEX. R.
APP. P. 26.1(c); Alexander v. Lynda’s Boutique, 134 S.W.3d 845, 848 (Tex. 2004).
When reviewing a default judgment in a restricted appeal, we do not indulge
any presumption in favor of proper issuance, service, and return of citation. See
Wachovia Bank of Del., N.A. v. Gilliam, 215 S.W.3d 848, 848 (Tex. 2007) (per
curiam); Bank of N.Y. v. Chesapeake 34771 Land Tr., 456 S.W.3d 628, 631 (Tex.
App.—El Paso 2015, pet. denied). “Instead, the prevailing party bears the burden
to prove service of process was proper, including under any of the long-arm
statutes authorizing substituted service on the Secretary of State.” Bank of N.Y.,
456 S.W.3d at 631 (citing Primate Constr., Inc. v. Silver, 884 S.W.2d 151, 153
(Tex. 1994) (per curiam)). “If the record fails to show strict compliance with the
rules relating to the issuance, service, and return of citation, error is apparent on the
face of the record, and the attempted service of process is invalid.” Id. (citing
Primate Constr., 884 S.W.2d at 152–53, and Uvalde Country Club v. Martin Linen
Supply Co., 690 S.W.2d 884, 885 (Tex. 1985) (per curiam)); see also Wilson v.
Dunn, 800 S.W.2d 833, 836 (Tex. 1990) (“For well over a century the rule has
been firmly established in this state that a default judgment cannot withstand direct
attack by a defendant who complains that he was not served in strict compliance
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with applicable requirements.”). For purposes of a restricted appeal, the record
consists of all papers on file in the appeal. Norman Commc’ns v. Tex. Eastman
Co., 955 S.W.2d 269, 270 (Tex. 1997) (per curiam); Bank of N.Y., 456 S.W.3d at
631.
Here, both Blosser and Surrogacy Group were named as defendants in the
original petition and in the trial court’s default judgment signed on June 26, 2017.
They filed their notice of restricted appeal on November 2, 2017, within six
months of the June 26, 2017 judgment. The trial court’s judgment reflects that
neither Blosser nor Surrogacy Group answered or participated in the trial court
proceedings in any way, and the record does not contain any postjudgment motions
or requests for findings of fact and conclusions of law filed by Blosser or
Surrogacy Group. Thus, the only question remaining is whether error was
apparent on the face of the record. See Bank of N.Y., 456 S.W.3d at 631.
B. Service of Citation
In their first issue, Blosser and Surrogacy Group argue, in part, that ROC
Funding failed to strictly comply with the rules for service of citation, which
resulted in neither Blosser nor Surrogacy Group receiving notice of the suit.
Here, the record contains several references to service of process pursuant to
Rule of Civil Procedure 106. The return of service filed for both Blosser and
Surrogacy Group stated that citation was served “per T.R.C.P. Rule 106(b).” The
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trial court likewise notified ROC Funding of inadequacies in its motion for default
judgment, noting, in part, that “Rule 106 requirements are that the defendant must
also be served by certified mail and regular mail.”
Rule 106(a) provides that citation “shall be served” by:
(1) delivering to the defendant, in person, a true copy of the citation
with the date of delivery endorsed thereon with a copy of the petition
attached thereto, or
(2) mailing to the defendant by registered or 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). Rule 106(b) provides for substituted service:
(b) Upon motion supported by affidavit stating the location of the
defendant’s usual place of business or usual place of abode or other
place where the defendant can probably be found and stating
specifically the facts showing that service has been attempted under
either (a)(1) or (a)(2) at the location named in such affidavit but has
not been successful, the court may authorize service
(1) by leaving a true copy of the citation, with a copy of the
petition attached, with anyone over sixteen years of age at the
location specified in such affidavit, or
(2) in any other manner that the affidavit or other evidence
before the court shows will be reasonably effective to give the
defendant notice of the suit.
TEX. R. CIV. P. 106(b).
The return of service filed for both Blosser and Surrogacy Group stated that
citation was served “per T.R.C.P. Rule 106(b),” but there is no indication in the
record that ROC Funding followed the procedures set forth in Rule 106(b). There
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is nothing in the record indicating that it attempted to serve either Blosser or
Surrogacy Group in person or at the mailing address listed in the Agreement—
“839 Bestgate Rd. Ste 400[,] Annapolis[,] MD 21401.” There is no “motion
supported by affidavit” from ROC Funding meeting the criteria set out in Rule
106(b), and there is no indication that the trial court authorized substituted service
here. See TEX. R. CIV. P. 106(b). Thus, the record demonstrates that ROC
Funding failed to strictly comply with the service requirements of Rule 106. See
Wilson, 800 S.W.3d at 836 (holding that party was not strictly served in
compliance with Rule 106(b) because substitute service “was not properly
authorized absent the affidavit explicitly required by the rule”); (One) 2000
Freightliner Truck-Tractor VIN: 1FUYDSEBXYDB07196 v. State, 441 S.W.3d
492, 494 (Tex. App.—El Paso 2014, no pet.) (holding that service was defective
and default judgment improper where record failed to show defendant was served
in strict compliance with Rule 106(b), noting that it was “undisputed that [the
plaintiff’s] motion for substituted service and supporting affidavit had not been
filed when the trial court entered the order authorizing” service by posting at
courthouse); Nat’l Multiple Sclerosis Soc’y–N. Tex. Chapter v. Rice, 29 S.W.3d
174, 177–78 (Tex. App.—Eastland 2000, no pet.) (holding that failure to comply
with Rule 106(b), when it applies, is fatal to default judgment and noting that
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“[t]he record contains no motion for substituted service, no affidavit to support
substituted service, and no order granting substituted service”).
Independently of Rule 106, there are several statutes that, although not
invoked by either party here, govern service of process on non-resident defendants.
See, e.g., TEX. CIV. PRAC. & REM. CODE ANN. § 17.044 (West 2015) (providing for
substituted service upon Secretary of State for nonresidents who meet certain
criteria); TEX. BUS. ORGS. CODE ANN. § 5.251 (West 2012) (providing that
Secretary of State is agent of entity for purposes of service of process in some
circumstances). However, even if we consider ROC Funding’s attempted service
of process through the Secretary of State in this context, the record demonstrates
that it failed to strictly comply with the requirements for proper service.
Application of these provisions also require that the record demonstrate that
the plaintiff used reasonable diligence in attempting to serve a defendant’s
registered agent at the registered office before substituting service on the Secretary
of State. See Marrot Commc’ns, Inc. v. Town & Country P’ship, 227 S.W.3d 372,
377 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) (holding that default
judgment obtained after attempted substituted service on Secretary of State will not
stand absent showing by plaintiff that, before it resorted to substitute service it first
used reasonable diligence in seeking service on corporation’s registered agent);
Ingram Indus., Inc. v. U.S. Bolt Mfg., Inc., 121 S.W.3d 31, 34 (Tex. App.—
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Houston [1st Dist.] 2003, no pet.) (explaining that plaintiff must establish, before
resorting to substitute service on Secretary of State, that it used reasonable
diligence in seeking service on registered agent of corporation).
Here, ROC Funding made no showing that either Blosser or Surrogacy
Group falls within the provisions of such a statute, instead stating in its petition
only that “service through the Secretary of State is appropriate because Defendants
do not have a regular place of business, or a designated agent for service of
process, in Texas.” And, assuming that Blosser and Surrogacy Group were both
required to designate an agent for service of process in Texas, there is no
demonstration that ROC Funding used reasonable diligence in seeking to serve the
defendants through such a registered agent. See Bank of N.Y., 456 S.W.3d at 635–
36 (holding, when plaintiff failed to allege in any of its pleadings that defendant
was required to maintain office in Texas and have registered agent but did not do
so, pleadings were insufficient to authorize substituted service or invoke
jurisdiction through long arm statutes).
To the contrary, the record indicates that ROC Funding did not attempt to
serve either Blosser or Surrogacy Group through a registered agent and that it was
aware of problems with the address it provided for service on the defendants. The
certificate of the Secretary of State indicated that the citation forwarded to “Greg
Blosser[,] 126 Cathedral Street[,] Annapolis, MD 21401” was “returned to this
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office on February 23, 2017, [b]earing the notation Return to Sender, Not
Deliverable as Addressed, Unable to Forward.” Likewise, the certification for the
citation addressed to “The Surrogacy Group LLC” and “Greg Blosser” at “126
Cathedral Street[,] Annapolis, MD 21401” stated, “As of this date, no response has
been received in this office.” There was no indication that any attempt was made
to provide notice to Blosser’s or Surrogacy Groups mailing address contained in
the record—“839 Bestgate Rd. Ste 400[,] Annapolis[,] MD 21401.” See
Autodynamics Inc. v. Vervoort, No. 14-10-00021-CV, 2011 WL 1260077, at *4–5
(Tex. App.—Houston [14th Dist.] Apr. 5, 2011, no pet.) (mem. op.) (holding that,
although certificate from Secretary of State may conclusively establish that process
was served, such certificate does not establish whether defendant’s registered agent
could not “with reasonable diligence be found at the registered office”); see also
Starbucks Corp., Inc. v. Smith, No. 05-06-01500-CV, 2007 WL 3317523, at *2
(Tex. App.—Dallas Nov. 9, 2007, no pet.) (mem. op.) (holding that Secretary of
State’s return bearing notation “Forwarding Order Expired” was “prima facie
evidence” that defendant was not served at correct address); GMR Gymnastics
Sales, Inc. v. Walz, 117 S.W.3d 57, 59 (Tex. App.—Fort Worth 2003, pet. denied)
(Secretary of State return bearing notation “not deliverable as addressed, unable to
forward” was prima facie evidence that address provided to Secretary of State was
incorrect and defendant was not served); Wright Bros. Energy, Inc. v. Krough, 67
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S.W.3d 271, 274 (Tex. App.—Houston [1st Dist.] 2001, no pet.) (process served
with notation “no such number” sufficient to place plaintiff on notice that there
was problem with address).
After reviewing the record, we conclude that the record fails to demonstrate
that ROC Funding strictly complied with law governing service of process on
Blosser and Surrogacy Group. Accordingly, there is error apparent on the face of
the record. See Alexander, 134 S.W.3d at 848.
We sustain Blosser and Surrogacy Group’s first issue to the extent that they
argue that they were not properly served in the suit. The failure of service
deprived the trial court of in personam jurisdiction to enter the default judgment
against Blosser and Surrogacy Group, and, thus, we need not consider their other
contentions on appeal. See Marrot Commc’ns, 227 S.W.3d at 376 (“Unless the
record affirmatively shows, ‘at the time the default judgment is entered,’ either an
appearance by the defendant, proper service of citation on the defendant, or a
written memorandum of waiver, the trial court does not have in personam
jurisdiction to enter the default judgment against the defendant.”) (quoting Am.
Universal Ins. Co. v. D.B. & B., Inc., 725 S.W.2d 764, 766 (Tex. App.—Corpus
Christi 1987, writ ref’d n.r.e.)).
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Conclusion
We reverse the judgment of the trial court and remand for further
proceedings consistent with this opinion.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Bland, and Lloyd.
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