Opinion ID: 62942
Heading Depth: 2
Heading Rank: 2

Heading: The Texas TCLs' Capacity

Text: The Appellants insist that any one or more among the Texas TCLs, the Colorado TCLs, the Estate, or the Estate's personal representative may maintain this action to recover additional interest under the Medicare reimbursement judgment rendered in favor of the Texas TCLs. As we hold that the Texas TCLs have capacity and that the district court erred in concluding otherwise, we do not address that court's rulings with respect to the standing of the Colorado TCLs or the Estate. The capacity of a corporation to bring suit is determined by the law of the state where it is organized. [5] In this case, therefore, we look to Texas law to determine whether the Texas TCLs have capacity to maintain this suit. In concluding that the Texas TCLs lacked capacity, the district court cited §§ 171.251 and 171.252 of the Texas Tax Code, which specify that a corporation forfeits its right to sue if it fails to pay its franchise taxes. [6] Texas TCL failed to pay its franchise taxes no later than November 18, 1991, and Texas TCL-Gulf failed to pay its franchise taxes no later than February 13, 1996. The district court reasoned therefore that neither Texas corporation had capacity under Texas law to proceed with this action for additional interest. The district court's reasoning is flawed, however, because § 171.252 bars corporations from filing suit only after they have forfeited their right to do business. [7] The Texas TCLs commenced their action to obtain Medicare reimbursement while they were authorized to do business under Texas law. In Rushing v. International Aviation Underwriters, Inc., a Texas appeals court analyzed an earlier version of § 171.252 and allowed an insurance company to maintain its claim as a subrogee of a defunct corporation, reasoning that the claim accrued and the insurance company initiated the action prior to the forfeiture of the corporation's charter. [8] In so ruling, the court stated: [T]he payment which is the basis of the subrogation action was made, and suit was filed, almost a year before the forfeiture of [the corporation's] charter. Consequently, the insurance company's right to sue was fixed prior to the forfeiture of [the corporation's] charter. [9] The attempt of the DHHS to dismiss Rushing as inapplicable because it concerns subrogation is unavailing: The Rushing court plainly stated that [i]ndeed, under Deveny, even [the corporation that forfeited its charter] could have maintained this suit against [the defendant] under these facts. [10] In Deveny v. Success Co ., the Texas Supreme Court held that, under an earlier version of the Texas Tax Code, the forfeiture of a foreign corporation's permit for failing to pay franchise taxes did not prevent its recovery in an action initiated before forfeiture. [11] The Texas TCLs initiated their Medicare reimbursement action on July 12, 1990, when they requested Carrier Review. [12] Texas TCL did not forfeit its right to do business in the State of Texas for failing to pay franchise taxes until November 1991. Accordingly, Texas TCL had capacity at the time the Medicare reimbursement action was commenced, and, under Rushing and Deveny, it retained capacity and will continue to do so until the suit's conclusion. The district court's ruling to the contrary was erroneous. The district court also erred when it ruled that Texas TCL-Gulf lacked capacity to pursue the claim for additional interest. Texas TCL-Gulf I was involuntarily dissolved in July 1988, for failing to maintain a registered agent in Texas. It was reincorporated (as Texas TCL-Gulf II) in September 1990 and did not forfeit its charter until September 1996, after failing to pay franchise taxes. As mentioned supra in note 1, there is some uncertainty as to whether the Texas TCL-Gulf that is a party to this suit is Texas TCL-Gulf I or II: The district court apparently treated the party as Texas TCL-Gulf II and ruled that the corporation lacked capacity to sue because it had forfeited its charter in 1996. Again, though, the district court's ruling is erroneous. It fails to appreciate that the Texas TCLs' Medicare reimbursement action was commenced prior to Texas TCL-Gulf II's forfeiture of its charter. Moreover, even if we treat the original corporation as the party to this suit  which we believe is proper because the Texas TCLs requested Carrier Review before Texas TCL-Gulf II was incorporated  Texas TCL-Gulf I has capacity to pursue its claim for additional interest. Texas TCL-Gulf I was involuntarily dissolved in July 1988, as opposed to forfeiting its charter for failing to pay franchise taxes. [13] Therefore, under article 7.12 of the Texas Business Corporation Act, Texas TCL-Gulf I had three years in which to bring an action on an existing claim. [14] The Texas TCLs' Medicare reimbursement claim arose in May 1988, before Texas TCL-Gulf I was involuntarily dissolved; and the Texas TCLs initiated the reimbursement action within three years of Texas TCL-Gulf I's dissolution when Carrier Review was requested in July 1990. Irrespective of whether the Texas TCL-Gulf that is a party to this suit is Texas TCL-Gulf I or II, it has capacity to proceed. Contrary to the district court's holding, each Texas corporation has the right to prosecute to conclusion the proceedings begun while it was still authorized under Texas law.
Our holding that the Texas TCLs have capacity to pursue their claim for additional interest is based on the fact that the Medicare reimbursement action was initiated in July 1990, when Carrier Review was requested. The DHHS nevertheless insists that the Texas TCLs' claim for additional interest is separate and distinct from their Medicare reimbursement claim. The DHHS further asserts that the Texas TCLs' interest claim did not accrue until December 2003  when the DHHS issued payment for the Medicare reimbursement judgment  well after the Texas TCLs had ceased to exist and any applicable survival period had expired. The DHHS's proposition widely misses the mark. It is pellucid that entitlement to interest is part and parcel of the underlying debt or liability, [15] especially under the Texas Business Corporation Act's broad definition of the term claim as including a right to payment, damages, or property, whether liquidated or unliquidated, accrued or contingent, matured or unmatured. [16] Furthermore, at the time that the instant proceedings were commenced, 42 C.F.R. § 405.378 was in effect, which regulation expressly authorizes a Medicare provider to collect interest on an underpayment. [17] We hold that the Texas TCLs' claim for additional interest was established on the date their Medicare reimbursement claim arose.
In addition to challenging the Texas TCLs' capacity to sue, the DHHS contends that this suit is barred because the Appellants' complaint was not expressly amended to name the Texas TCLs as plaintiffs until after the lapse of the sixty-day deadline for seeking judicial review of an agency decision. [18] Because the district court held that the Texas TCLs lacked capacity, it did not reach this issue. Following the Appeals Council's decision denying additional interest, the Appellants had until October 31, 2005 to seek judicial review. They filed their complaint in the district court in Colorado on October 26, 2005; however, the complaint's caption identifies the plaintiffs as Texas Clinical Labs, Inc., n/k/a Texas Clinical Labs, LLC; Texas Clinical Labs-Gulf Division, Inc., n/k/a Texas Clinical Labs-Gulf Division, LLC; and the Estate of Daniel P. Campbell. The Appellants did not amend their complaint to name the Texas TLCs as plaintiffs until March 17, 2006, well after the sixty-day review deadline had passed. Nevertheless, we hold that, given, inter alia, (1) the procedural history of this matter, (2) the caption of the original complaint, and (3) the allegations in the original complaint, the Appellants' amended complaint plainly relates back to the filing of their original complaint under Federal Rule of Civil Procedure 15(c). [19] The DHHS's contention that the district court was without subject matter jurisdiction when the Appellants initiated this suit, and that there is therefore nothing to which the amended complaint can relate back, is a non-starter. The Appellants' amended complaint, identifying the Texas TCLs as proper plaintiffs, obviously relates back to their original complaint. The Texas TCLs are thus not barred by the sixty-day limitation period within which to seek judicial review of a final agency decision.