Title: CORMAN v. H-30 DRILLING, INC.

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

CORMAN v. H-30 DRILLING, INC.  CORMAN v. H-30 DRILLING, INC. 2001 OK 92 40 P.3d 1051 73 OBJ 878 Case Number: 94255 Decided: 10/30/2001 Modified: 03/21/2002 Mandate Issued: 02/07/2002 As Corrected: March 21, 2002 THE SUPREME COURT OF THE STATE OF OKLAHOMA JACK CORMAN, an individual, Plaintiff-Appellee v. H-30 DRILLING, INC., a Kansas Corporation, Defendant-Appellant and PAULINE K. SELMAN and WALTER STENGLEMEIER, co-personal representatives of the Estate of Robert E. Selman, Deceased. Defendants. CERTIORARI TO THE OKLAHOMA COURT OF CIVIL APPEALS, DIVISION NO. 3 ¶0 In 1994, Plaintiff, Jack Corman, sued defendants, Robert E. Selman and H-30 Drilling, Inc., in the District Court of Oklahoma County, Hon. Daniel L. Owens, district judge, for damages for pollution. Corman was seeking reimbursement for cleanup costs he had been required to pay, arising out of the drilling of an oil and gas well in 1987. Selman's estate and Corman settled and the Selman estate was dismissed from the case before the events at issue here occurred. The case was set for trial on January 10, 2000. On the morning of trial, Corman filed and presented to the trial court a motion to deprive H-30 of its right to either defend against Corman's claims against it or to present its counterclaim. Corman based his motion on CERTIORARI PREVIOUSLY GRANTED, COURT OF CIVIL APPEALS' OPINION VACATED, JUDGMENT OF THE DISTRICT COURT REVERSED AND REMANDED FOR TRIAL ON THE MERITS. L. Vance Brown, Michael J. Massad, ELIAS, BOOKS, BROWN, PETERSON & MASSAD, P.C., Oklahoma City, Oklahoma for Plaintiff-Appellee. M. Thad Groom, Jeffrey E. Tate, GROOM, HAMMOND & HARRIS, P.C., Oklahoma City, Oklahoma, for Defendant-Appellant. OPINION Watt, Vice Chief Justice, FACTS AND PROCEDURAL BACKGROUND ¶1 In 1987, defendant, H-30 Drilling, Inc., was a Kansas corporation that was licensed to do business and doing business in Oklahoma. That year, H-30 drilled an oil and gas well in Woods County, Oklahoma for Plaintiff, Jack Corman. Corman held a lease to the oil and gas interests underlying the well and operated the well after its completion. In 1991 the Oklahoma Corporation Commission instituted proceedings against Corman as the well's operator to require him to clean up claimed pollution to the aquifer underlying the well. As a result of the Corporation Commission's actions, Corman was obliged to expend considerable funds in removing pollutants from the aquifer. In 1994 Corman brought suit in the District Court of Oklahoma County against H-30 and Robert E. Selman, who had been H-30's subcontractor and had done the dirt work on the well. Corman ultimately settled with Selman's estate and the estate is no longer a party to the suit. ¶2 The suit between Corman and H-30 was hotly contested. After years of discovery and motions there were nearly five-hundred pages of pleadings in the record at the time the case was called for trial the case finally was scheduled to come to trial on January 10, 2000. On the morning of trial Corman filed and presented to the trial court, Hon. Daniel L. Owens District Judge, a motion to deprive H-30 of its right to either defend against Corman's claims against it or to present its counterclaim. ¶3 Corman based his motion on ¶4 Corman filed an application for attorneys' fees and costs on February 9, 2000. The trial court held a hearing on Corman's motion on March 20, 2000 and entered judgment for an attorneys' fee of $106,657.20 and costs of $4,948.45 on March 29, 2000. Thus the economic impact upon H-30 of the trial court's decision not to allow it time within which to pay $170.00 in franchise taxes amounted to $309,281.70. ¶5 The trial court did not allow H-30 to participate after Corman filed his motion on the ground that the court was not required to hear H-30's presentation "because it is a non-entity for that purpose." The trial court also said, ". . . basically we're here for purposes of a default judgment this morning." The record reflects that Corman had known for nearly two years that H-30 had not paid its franchise taxes but did not raise the issue until the morning of trial. For reasons the record does not make clear, the trial court did allow H-30 to participate in the attorneys' fee phase of the case, despite its earlier refusal to allow H-30 to defend on the merits because it "is a non-entity." ¶6 H-30 paid its back franchise taxes, $170.00, on the same day the trial court entered judgment against it. Three days later, on January 13, 2000, H-30 filed a motion to vacate the judgment the trial court had entered against it. Attached to H-30's motion to vacate the judgment was a certificate of good standing from the Secretary of State and a letter from the Tax Commission certifying that H-30 had paid its back franchise taxes on January 10, 2000. Following a hearing,2The trial court did not explain why he apparently thought that allowing H-30 a reasonable time to pay its franchise taxes would have been fundamentally unfair, although allowing H-30 to do so would merely have maintained the status quo, whereas not allowing it to do so deprived H-30 of its right to defend in a $309,000.00 lawsuit. The trial court also did not address the fact that Corman did not raise the franchise tax issue until the morning of trial, although he had know about it for nearly two years. the trial court denied H-30's motion to vacate on January 21, 2000 and H-30 appealed. The Court of Civil Appeals, Division 3, in a two-to-one opinion, affirmed the trial court. ISSUE ¶7 The primary issue here is whether the trial court erred in denying H-30's motion to vacate the January 10, 2000 judgment. Subsumed in this issue is the question of whether the trial court's denial to H-30 of a reasonable time to pay its taxes after it learned of Corman's January 10, 2000 motion denied H-30 its right to due process of law. We hold that the trial court did err in denying H-30's motion to vacate judgment and denied H-30 its right to due process of law when the court refused to allow H-30 a reasonable time to pay its taxes after it learned of Corman's January 10, 2000 motion. DISCUSSION ¶8 Title . . . In any suit against such corporation, association or organization on a cause of action arising before such forfeiture, no affirmative relief shall be granted to such corporation, association or organization unless its right to do business in this state shall be reinstated as provided herein. . . . [Emphasis added.] We interpreted § 1212(c) In Bethlehem Steel Corp. v. Giese, ¶9 In J.D. Simmons, Inc. v. Alliance corp., 79 F.R.D. 547 (W.D. Okla. 1978), which we quoted from in Nichols-Homeshield, Inc. v. Mid-American Construction supply, Inc., Once the taxes have been paid and the corporation reinstated, the purpose behind section 1212 has been met and no further penalty should be imposed. The basis for the federal court's holding was this Court's opinion in Midvale Min. & Mfg. Co. v. Dutron Corp., ¶10 The foregoing opinions make clear that if Corman had given H-30 notice reasonably in advance of the presentation of his motion of his intention to seek to deprive H-30 of its right to defend the suit under § 1212(c), this dispute need never have arisen. H-30's payment of its back franchise taxes would have related back because, at the time H-30's acts Corman complains of took place, H-30 was in good standing in Oklahoma. H-30 had expended many years and tens of thousands of dollars in defending itself against Corman's claims. Thus, there is no record support for a conclusion that H-30 intentionally failed to pay a $170.00 tax, although not doing so put it at risk of losing its right to defend against Corman's suit. ¶11 It is a fundamental precept of the law that no citizen may be deprived of life, liberty, or property without due process of law and that reasonable notice of an action that would so deprive it is its due under the constitution. We have held, "When significant property interests are adversely affected or likely to be affected, notice is one's constitutional due." [Emphasis as in the original.] Norman v. Trison Development Corporation, ¶12 In Luster v. Bank of Chelsea, . . . The focus of our inquiry is not whether the notice substantially complied with state statutory procedures; but rather, whether the notice satisfied the elementary and fundamental requirement of due process. In Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 , 314, 70 S. Ct. 652, 94 L. Ed. 865 (1950), the leading case on due process requirements as to notice, the United States Supreme Court held where an action affects a person's interest in life, liberty or property such person is entitled to notice reasonably calculated, under all the circumstances, to be apprised of the pendency of the action and afforded an opportunity to present objections. [Emphasis added.] Here the trial court denied H-30 the time necessary to establish the only defense to the motion that was important: that it had paid a relatively insignificant $170.00 tax bill. In so doing the trial court ignored the notice requirements contained in several Rules for District Courts. ¶13 The policy of the law is that all issues in a case must be identified in a seasonable manner. The purpose of this requirement is to avoid trial-by-ambush, in which a party is surprised and then not given a reasonable time to effectively defend itself. The Pleading Code, Pretrial Orders. . . . The pretrial order shall include [Emphasis added.] Under Rule 5(I) any issue not identified in the pretrial order will not be considered unless it is permitted to prevent "manifest injustice." ¶14 We see no basis for Corman's failure to identify and include in the pretrial order the franchise tax issue. Corman's counsel admitted to the trial court at the hearing of his motion to deprive H-30 of its defenses that he had know for nearly two years that H-30 had not paid its Oklahoma franchise taxes. ¶15 The trial court committed reversible error when it allowed Corman to present its motion without first giving H-30 a reasonable opportunity to pay its back taxes. Rule 5(I) directs trial courts not to allow departure from the contents of the pretrial order "unless departure therefrom is permitted by the Court to prevent manifest injustice ." [Emphasis added.] We note that the only prejudice Corman might have suffered if the trial court had granted H-30 a short continuance would have been the possible loss of its place on the jury docket. Clearly, this would have been a small price to pay for Corman's having manifestly violated Rule 5(I) of the Rules for District Courts. ¶16 The trial court erred in his assumption that H-30's non-payment of its franchise taxes required him to immediately deprive H-30 of its right to defend. This conclusion ignored the fact that due process requirements and the express terms of Rule 5(I) of the Rules for District Courts prohibited Corman from presenting an issue that he had not identified in the pretrial order without first showing "manifest injustice." ¶17 As we have held that the trial court erred in allowing Corman to present his motion to deprive H-30 of its right to defend, we also hold that the trial court erred in denying H-30's motion to vacate the judgment entered against it. H-30's motion to vacate established that it had paid its franchise taxes. The fact that H-30 had paid its taxes within a few hours of the time the trial court refused to allow it a continuance to do so was an additional reason not to deprive H-30 of its right to establish a defense to Corman's lawsuit. ¶18 The parties have called our attention to three Court of Civil Appeals opinions that have addressed the effect of a corporation's suspension for non-payment of franchise taxes and the propriety of the trial court's handling of the issue. Aviation Data Services v. A.C.E. Copier Service, Inc., ¶19 In the third Court of Civil Appeals opinion, Sapulpa Travel Services v. White, defendant, White, appealed from an order of the trial court that had set aside a summary judgment against the plaintiff, travel agent. Summary judgment had been entered upon White's proof that the travel agent had not paid its franchise taxes. The travel agent paid its taxes later, however, and the trial court granted its motion to vacate the summary judgment. The Court of Civil Appeals affirmed. We address these Court of Civil Appeals opinions in order to make clear that they should not be considered authority for depriving a party to a lawsuit if its right to defend for non-payment of franchise taxes without a reasonable opportunity having been given to pay those taxes. The basis for this rule is that § 1212(c)'s policy is to encourage taxpayers to pay their taxes, not to deprive them of the right to present claims or defenses in lawsuits. ¶20 Our holding today should not be interpreted to mean that a corporation that does not pay its franchise taxes should be allowed to continue to participate in a lawsuit indefinitely. Such a corporation should be given a reasonable opportunity to pay its taxes, but if it does not do so at the first opportunity after the fact of its non-payment has been raised in a lawsuit, its right to pay them should be deemed to have been waived. CONCLUSION ¶21 Corman violated Rule 5(I) of the Rules for District Courts when, on the morning of trial and without prior notice to H-30, he submitted for decision by the trial court his motion to deprive H-30 of its defenses for non-payment of franchise taxes. The trial court committed reversible error in not allowing H-30 an opportunity to pay its back taxes before the trial court entered judgment against H-30. It is fundamental that no citizen may be deprived of its life, liberty, or property without reasonable notice that will allow it to defend itself in a meaningful way, Luster v. Bank of Chelsea, ¶22 Although a corporation that is a party to a lawsuit should be given a reasonable opportunity to pay back franchise taxes after its opponent raises the issue, it must then pay its taxes promptly and it should not be allowed to continue to participate in the suit indefinitely if it fails to do so. ¶23 CERTIORARI PREVIOUSLY GRANTED, COURT OF CIVIL APPEALS' OPINION VACATED, JUDGMENT OF THE DISTRICT COURT REVERSED AND REMANDED FOR TRIAL ON THE MERITS. ¶24 HARGRAVE, C.J., WATT, V.C.J., HODGES, LAVENDER, KAUGER, SUMMERS, BOUDREAU, WINCHESTER, JJ. - concur. ¶25 OPALA, J. - concurs in result. FOOT