Opinion ID: 895153
Heading Depth: 3
Heading Rank: 2

Heading: The Trust Fund Act's Language

Text: Beyond focusing on the exclusivity language found in Commercial Union and Bunch, the court of appeals cited two decisions interpreting earlier versions of the Trust Fund Act. See Truckers, Inc. v. S. Tex. Constr. Co., 561 S.W.2d 855, 859 (Tex. Civ.App.-Corpus Christi 1977, no writ); Econ. Forms Corp. v. Williams Bros. Constr. Co., 754 S.W.2d 451, 457 (Tex. App.-Houston [14th Dist.] 1988, no writ). Those decisions held that the Trust Fund Act did not apply when a construction contract was covered by a corporate surety bond. [5] Despite significant changes to the statutory language, the court of appeals relied on those decisions in interpreting the current Trust Fund Act. We disagree with that interpretation. Under the Trust Fund Act, payments made to a contractor or subcontractor under a construction contract for the improvement of real property are considered to be trust funds. TEX. PROP.CODE § 162.001(a). Subcontractors or suppliers who furnish labor or material for the construction project are considered beneficiaries of any trust funds paid or received in connection with the improvement. Id. § 162.003. A trustee misapplies trust funds if it intentionally or knowingly or with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries of the trust fund. Id. § 162.031(a). A party who misapplies trust funds under the Trust Fund Act is subject to civil liability to trust-fund beneficiaries whom the Act was designed to protect. See C & G Inc. v. Jones, 165 S.W.3d 450, 453 (Tex.App.-Dallas 2005, pet. denied). Until 1987, the Trust Fund Act, by its terms, did not apply to  receipts under a construction contract if the full contract amount [was] covered by a corporate surety bond. Act of May 27, 1983, 68th Leg., R.S., ch. 576, § 1, 1983 Tex. Gen. Laws 3475, 3721 (amended 1987) (current version at TEX. PROP.CODE § 162.004) (emphasis added). Thus, until 1987, Dealers would not have been entitled to assert a trust-fund claim against Scoggins, as the prime contract in this case was covered by a corporate surety bond. However, in 1987 the Act was amended, eliminating the language that excluded receipts under a bonded project. Act of May 25, 1987, 70th Leg., R.S., ch. 578, § 2, 1987 Tex. Gen. Laws 2283, 2283. As amended, the Trust Fund Act instead exempts from liability a corporate surety who issues a payment bond covering the contract for the construction or repair of the improvement. TEX. PROP.CODE § 162.004(a)(3) (emphasis added). By narrowing the statutory exemption in this manner, the Legislature unequivocally expanded the Trust Fund Act's purview. See Fleming Foods of Tex. v. Rylander, 6 S.W.3d 278, 284 (Tex.1999). Accordingly, when, as in this case, the full amount of the prime contract is covered by a corporate surety bond, the surety itself is not a trustee of construction funds and cannot be sued under the Trust Fund Act. But even when a public construction project is bonded, the plain language of the amended Act protects laborers and materialmen by providing them with a remedy against a nonsurety trustee's improper diversion of trust funds. See id. The court of appeals, however, determined that the change in the Trust Fund Act's language was non-substantive, and relied on cases interpreting the Act prior to the 1987 amendment. 292 S.W.3d at 691 (citing Trucker's, Inc., 561 S.W.2d at 859; Econ. Forms Corp., 754 S.W.2d at 457). The court compared the pre-amended statute [6] to the current version and found the two statutes to be similar. Id. at 691-93. The court then pointed to an acknowledgment by the 1983 Legislature that codified the former statute that the property code was intended to be a `topic-by-topic' revision of the state's general and permanent statute law without substantive change.  Id. at 693 (citing TEX. PROP.CODE § 1.001(a)) (emphasis added by court of appeals). While the court acknowledged that the 1983 codification was amended in 1987, it refused to give any weight to that amendment. Id. In doing so, the court erred. First, courts may not look back to the former text of a statute that has been nonsubstantively re-codified if the current text is direct and unambiguous. Fleming Foods, 6 S.W.3d at 286; see also Arias v. Brookstone, L.P., 265 S.W.3d 459, 465 (Tex.App.-Houston [1st Dist.] 2007, pet. denied). The court of appeals erroneously imputed the apparent intent of the 1983 Legislature to the 1987 Legislature and ignored the unequivocal change in statutory language that the latter effected. Additionally, since neither the McGregor Act nor the current version of the Trust Fund Act are expressly exclusive of the other, they can only be exclusive by implication. See Holmans v. Transource Polymers, Inc., 914 S.W.2d 189, 192 (Tex.App.-Fort Worth 1995, writ denied). Conflicting statutory provisions must, however, be construed so that effect is given to both, if possible. Tex. Gov.Code § 311.026(a). In deciding whether dual remedies may be given effect, we look to whether `the Legislature intended for the regulatory process to be the exclusive means of remedying the problem to which the regulation is addressed.' City of Waco v. Lopez, 259 S.W.3d 147, 153 (Tex. 2008) (quoting In re Sw. Bell Tel. Co., 235 S.W.3d 619, 624-25 (Tex.2007)). The McGregor Act reflects no such intent. As noted earlier, the purpose of the McGregor Act is to provide unpaid public-work laborers and materialmen with an additional remedy and a simple and direct method to perfect their claims to that remedy. See Capitol Indem. Corp., 170 S.W.3d at 147. Similarly, the Trust Fund Act was enacted for the protection of laborers and materialmen, and is a remedial statute that should be given a broad construction. RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex. 1985); C & G Inc., 165 S.W.3d at 454. Interpreting the McGregor Act to provide an exclusive remedy for unpaid claims would contravene, rather than further, the purpose of both the McGregor Act and the Trust Fund Act. To hold that one impliedly abrogates the other absent the Legislature's expression would undermine both Acts' clear purpose.