Court Opinion

ID: 4076317
Source: CourtListenerOpinion
Date Created: 2016-09-30 07:22:26.149753+00
Date Added: 2024-06-11T14:26:17.384065
License: Public Domain

ACCEPTED
                                                                         03-15-000428-cv
                                                                                 8380905
                                                              THIRD COURT OF APPEALS
                                                                         AUSTIN, TEXAS
                                                                   12/28/2015 3:39:32 PM
                                                                       JEFFREY D. KYLE
                                                                                  CLERK

                         NO. 03-15-00428-CV
 _________________________________________________________________
                                                        FILED IN
                                               3rd COURT OF APPEALS
                                                    AUSTIN, TEXAS
                     IN THE COURT OF APPEALS   12/28/2015 3:39:32 PM
                 FOR THE THIRD DISTRICT OF TEXAS JEFFREY D. KYLE
                             AT AUSTIN                  Clerk
__________________________________________________________________

                          BERNARD MORELLO,
                               Appellant,

                                  v.

                       THE STATE OF TEXAS,
                              Appellee.
 _________________________________________________________________

              On Appeal from Cause No. D-1-GV-06-000627
               353RD Judicial District Court, Austin, Texas
                     The Honorable Rhonda Hurley
__________________________________________________________________

                   APPELLANT’S REPLY BRIEF
__________________________________________________________________

LAPEZE & JOHNS, PLLC
Keith W. Lapeze
Texas Bar No. 24010176
601 Sawyer Street, Suite 650
Houston, Texas 77007
Tel. (713) 739-1010
Fax. (713) 739-1015
keith@lapezejohns.com

                                       ORAL ARGUMENT REQUESTED
                                           TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................... 1

TABLE OF AUTHORITIES ..................................................................................... 2

REPLY POINTS ........................................................................................................ 3

A.       Not Only Is Shook v. Walden “Germaine” to this Case, but it
         Precludes Judgment Against Morello in His Individual Capacity .................. 3

B.       Based Upon Texas’s Canons of Statutory Construction, It Is Clear that
         the Legislature Did not Intend for an LLC’s Members to Incur
         Personal Liability for the Entity’s Violations of Water Code Section
         7.102 ................................................................................................................ 4

C.       Even Assuming that Water Code Section 7.102 Could Be Construed
         as Imposing Individual Liability Against Morello, the Doctrine of in
         Pari Materia Requires the Opposite Construction ........................................... 7

PRAYER .................................................................................................................. 10

CERTIFICATE OF COMPLIANCE ....................................................................... 11

CERTIFICATE OF SERVICE ................................................................................ 11

APPENDIX .............................................................................................................. 12

                                                               1
                                     TABLE OF AUTHORITIES

Cases

Carlson v. City of Houston,
      309 S.W.3d 579 (Tex. App.—Houston [14th Dist.] 2010, no pet.) ................ 6

Shook v. Walden,
      368 S.W.3d 604 (Tex. App.—Austin 2012, pet. denied) ..................... 3-4, 7-8

Spurck v. Tex. Dep’t of Family Protective Servs.,
      396 S.W.3d 205 (Tex. App.—Austin 2013, no writ) ...................................... 4

Rules/Statutes

TEX. HEALTH & SAFETY CODE §361.223(a) (Vernon 1989) (recodified at Tex.
Water Code §7.102) ................................................................................................... 7

TEX. GOV’T CODE ANN. § 311.023(4) (West 2005)................................................... 4

TEX. GOV’T CODE ANN. § 311.026 (West 2005) ................................................... 6-7

TEX. HEALTH & SAFETY CODE §247.044 (Vernon 2014) .......................................... 5

TEX. HEALTH & SAFETY CODE §247.045 (Vernon 2014) .......................................... 5

TEX. WATER CODE §7.102 (Vernon 2014) ....................................................4, 5, 6, 7

                                                           2
I.     APPELLANT’S REPLY POINTS

       A.     Not Only Is Shook v. Walden “Germaine” to this Case, but it
              Precludes Judgment Against Morello in His Individual Capacity

       Morello’s first issue for review posits that the trial court’s entry of summary

judgment was error for multiple reasons, the first of which is that this Court’s

opinion in Shook v. Walden requires the opposite result. See 368 S.W.3d 604 (Tex.

App.—Austin 2012, pet. denied).           In Shook, this Court examined whether a

member of an LLC could be subject to individual liability in contract based on

veil-piercing principles. See id. at 610. After examining the language of article

4.03 of the Texas Limited Liability Company act (“Article 4.03”), the Shook court

concluded that such liability could only be imposed upon a showing that the

member “used [the LLC] for the purpose of perpetrating and did perpetrate an

actual fraud . . . for his ‘direct personal benefit.’” Id. at 622.

       In its brief, the State acknowledges that it failed to present such proof in

support of its summary judgment motion.             (State’s Brief at 26.)   The State

nevertheless argues that “Shook is simply not germane.” According to the State,

this is because Shook only governs LLC member liability where a plaintiff seeks to

impose such liability through veil piercing as opposed to a situation where

individual liability applies under a statute such as Texas Water Code section 7.102.

       But this reading of Shook is impermissibly narrow given that under the

statute applicable in this case and Shook (i.e., Article 4.03), the corporate veil acts

                                             3
to shield LLC members from all “debts, obligations, or liabilities of [the] LLC.”

See Shook, 368 S.W.3d at 613 (reciting language of Article 4.03(A)). Indeed, and

as the Shook court noted, Article 4.03(C) goes even further, mandating that “[a]

member of a limited liability company is not a proper party to proceedings by or

against a limited liability company.” See id (emphasis added). Thus, Shook stands

for the proposition that, absent proof that an LLC was used to perpetrate a fraud,

Article 4.03 protects the member from any liability arising from action taken on

behalf of the LLC. This includes any liability arising under Texas Water Code

7.102. Thus, and contrary to the State’s arguments, Shook is not only germane to

this case, but it is dispositive and requires reversal of the trial court’s summary

judgment.

      B.     Based Upon Texas’s Canons of Statutory Construction, It Is Clear
             that the Legislature Did not Intend for an LLC’s Members to
             Incur Personal Liability for the Entity’s Violations of Water Code
             Section 7.102

      With respect to Morello’s argument that Article 4.03 shields LLC members

from liability, the State also contends that the Texas Legislature did not intend for

Article 4.03 to shield LLC members from the general liability provision of Water

Code section 7.102.     (State’s Brief at 27-28.)    While the State provides no

argument or analysis supporting this claim of legislative intent, strong evidence

exists that the Texas Legislature did not intend for Water Code section 7.102 to

impose liability on the members of an LLC.

                                          4
      When ascertaining the legislative intent behind a statutory provision, a court

may consider many factors one of which is “common law or former statutory

provisions, including laws on the same or similar subjects.” See TEX. GOV’T

CODE ANN. § 311.023(4) (West 2005) (emphasis added); Spurck v. Tex. Dep’t of

Family Protective Servs., 396 S.W.3d 205, 217 (Tex. App.—Austin 2013, no writ).

The instant case constitutes a statutory enforcement action allowing injunctive

relief and civil penalties relating to hazardous waste disposal pursuant to Texas

Water Code sections 7.105 and 7.102. Chapter 247 of the Texas Health and Safety

Code governs licensing of assisted living facilities. Like chapter 7 of the Water

Code, Chapter 247 allows the State to bring a statutory enforcement action

allowing injunctive relief and civil penalties relating to violations of the act. See

TEX. HEALTH & SAFETY CODE §§ 247.044, 247.045 (Vernon 2014).                    Thus,

referenced provisions of the Water Code and Health and Safety Code include laws

on similar subjects: civil penalties through state enforcement actions.

      Section 247.045(a) of the Health and Safety Code provides that “a person

who violates this chapter or fails to comply with a rule adopted under this chapter .

. . is subject to a civil penalty of not less than $100 nor more than $10,000 for each

act of violation.”    If the “person” in violation is an LLC, the Legislature

specifically ensured that it could hold the entity’s individual members liable by

including the following language in Section 247.045(h):

                                          5
      If a person who is liable under this section fails to pay any amount the
      person is obligated to pay under this section, the state may seek
      satisfaction from any owner, other controlling person, or affiliate of
      the person found liable.

      By contrast, Texas Water Code section 7.102 does not demonstrate an intent

by the Legislature to create individual liability against an LLC’s members. This

section provides as follows:

      . . . . A person who causes, suffers, allows, or permits a violation of a
      statute, rule, order, or permit relating to any other matter within the
      commission's jurisdiction to enforce . . . shall be assessed for each
      violation a civil penalty not less than $50 nor greater than $25,000 for
      each day of each violation as the court or jury considers proper.

TEX. WATER CODE §7.102 (Vernon 2012).

      Had the Legislature intended section 7.102 to create liability on the part of

members of an LLC for the liability incurred by the LLC, it could have clarified

this intent as in section 247.045(h) of the Health and Safety Code. Nevertheless,

the Water Code contains no other provision providing such clarification. The only

thing that the State can point to is the “catch all” definition of “person” contained

in section 311.005 of the Government Code: “‘Person’ includes corporation,

organization, government, or governmental subdivision or agency, business trust,

estate, trust, partnership, association, or any other legal entity.” Even assuming

that this term refers to “natural persons” as the State contends, the legislature’s

failure to extend this definition to LLC members—as it did in in Health and Safety

Code section 247.045(h)—evinces an intent that Water Code section 7.102 does

                                          6
not apply to LLC members.

      C.    Even Assuming that Water Code Section 7.102 Could Be
            Construed as Imposing Individual Liability Against Morello, the
            Doctrine of in Pari Materia Requires the Opposite Construction

      Assuming arguendo that Water Code section 7.102 can be construed as

imposing individual liability against members of an LLC, the doctrine of in pari

materia precludes such an interpretation. This doctrine provides that “‘[w]here

one statute deals with a subject in general terms, and another deals with a part of

the same subject in a more detailed way, the two should be harmonized if possible;

but if there is any conflict, the latter will prevail.’” Carlson v. City of Houston,

309 S.W.3d 579, 586 (Tex. App.—Houston [14th Dist.] 2010, no pet.). This

doctrine has been codified at section 311.026 of the Texas Government Code and

provides as follows:

      (a) If a general provision conflicts with a special or local provision,
      the provisions shall be construed, if possible, so that effect is given to
      both.

      (b) If the conflict between the general provision and the special or
      local provision is irreconcilable, the special or local provision prevails
      as an exception to the general provision, unless the general provision
      is the later enactment and the manifest intent is that the general
      provision prevail.

      If the Court construes section 7.102 as imposing individual liability against

members of an LLC as the State contends, the statute is irreconcilable with Article

4.03, such that the Court must conduct an analysis under Government Code section

                                          7
311.026(b). Applying this statutory cannon of construction requires a holding that

Water Code section 7.102 does not impose personal liability against the member of

an LLC. Specifically, section 7.102 provides as follows:

      . . . . A person who causes, suffers, allows, or permits a violation of a
      statute, rule, order, or permit relating to any other matter within the
      commission's jurisdiction to enforce . . . shall be assessed for each
      violation a civil penalty not less than $50 nor greater than $25,000 for
      each day of each violation as the court or jury considers proper.

TEX. WATER CODE §7.102 (Vernon 2012). Water Code Section 7.102 was initially

enacted in substantial form under Texas Health and Safety Code section

361.223(a) and was passed into law by the 71st Texas Legislature effective

September 1, 1989. (Apdx. 1.) On September 1, 1997, the 75th Legislature of

Texas re-codified Texas Health and Safety Code section 361.223(a) under Texas

Water Code section 7.102 where it remains today in substantial form. (Apdx. 2.)

Thus, the provisions of Water Code section 7.102 have been Texas law since at

least September 1, 1989.

      Subsequent to the Legislature’s enactment of section 7.102 and its

predecessor, “the Texas legislature, for the first time, authorized the creation of

limited liability companies through its 1991 enactment of the Texas Limited

Liability Company Act.” Shook v. Walden, 368 S.W.3d 604, 613 (Tex. App.—

Austin 2012, pet. denied). As discussed supra, “[f]ormer LLC Act article 4.03

specified that ‘[e]xcept as and to the extent the regulations [of the LLC]

                                          8
specifically provide otherwise, a member or manager is not liable for the debts,

obligations or liabilities of a limited liability company including under a judgment

decree, or order of a court.’” Id. (citing Act of May 25, 1991, 72d Leg., R.S., ch.

901, § 42, art. 4.03, 1991 Tex. Gen. Laws 3203 (amended 2003).

      Thus, and under the State’s construction (upon which the trial court agreed

and granted summary judgment), Water Code section 7.102 acts as a general

provision of law broadly imputing liability to any corporation, partnership, limited

liability company and its officers, directors, partners, members, managers, or

employees that violate any one of the myriad statutes or rules within the TCEQ’s

jurisdiction. Conversely, section 4.103(A) is a “special provision” enacted after

section 7.102 which specifically shields members or managers from any type of

liability attributable to a limited liability company—including liability related to

judgments or court orders.

      Accordingly, the specific provision of section 4.03(A) (which specifically

shields members/managers of LLC’s from liability incurred by the LLC)

conflicts with the general provision of Water Code section 7.102 (which broadly

renders any person liable for violation of regulatory rules and statutes enforced by

the TCEQ). Because of this conflict, Government Code section 311.026 mandates

that Article 4.03 prevails. In rendering summary judgment for the State, however,

the trial court, misapplied Texas law, rejected Morello’s affirmative defense under

                                         9
A 4.03, and imposed individual liability against Morello based on section

7.102. For this reason, the trial court’s summary judgment was error and must be

reversed.

                                     PRAYER

      Based on the above, Morello asks this Court to reverse the trial court’s final

summary judgment order in this case and either render a take-nothing judgment

against the State or, alternatively, remand the case for a new trial. Morello also

asks this Court for any additional relief to which he may be entitled.

                                               Respectfully submitted,

                                               LAPEZE & JOHNS, P.L.L.C.

                                               By:__ _________________________
                                               Keith W. Lapeze
                                               Texas Bar No. 24010176
Taylor L. Shipman
                                               Texas Bar No. 24079323
                                               601 Sawyer Street, Suite 650
                                               Houston, Texas 77007
                                               Tel. (713) 739-1010
                                               Fax. (713) 739-1015
                                               keith@lapezejohns.com
                                               taylor@lapezejohns.com

                      CERTIFICATE OF COMPLIANCE

      I hereby certify that the foregoing Brief of Appellant, filed on December 28,

2015, was prepared with Microsoft Word for Windows and that, according to that

                                          10
program’s word-count function, the sections covered by Texas Rule of Appellate

Procedure 9.4(i)(1) contain 2323 words.

                                               _____________________________
                                               Keith Lapeze

                        CERTIFICATE OF SERVICE

      I hereby certify that a true and correct copy of the foregoing instrument was

forwarded to Appellant’s Counsel by the electronic filing manager, pursuant to the

Texas Rule of Appellate Procedure 9.5(b)(1), on this 28th day of December 2015.

VIA Facsimile
Craig Pritzlaff
Assistant Attorney General
P.O. Box 12548, MC-066,
Austin, TX 78711

                                                    ________________________
                                                    Keith Lapeze

                                          11
                              Appendix

Tab 1:   TEX. HEALTH & SAFETY CODE §361.223(a) (Vernon 1989) (recodified
         at Tex. Water Code §7.102)

Tab 2:   TEX. WATER CODE §7.102 (Vernon 1997)

                                 12
TAB 1

  13
§ 361.223. Civil Penalties, V.T.C.A., Health & Safety Code § 361.223

                                    V.T.C.A., Health & Safety Code § 361.223
                            VERNON’S TEXAS STATUTES AND CODES ANNOTATED
                                         HEALTH AND SAFETY CODE
                         TITLE 5. SANITATION AND ENVIRONMENTAL QUALITY
                              SUBTITLE B. SOLID WASTE, SEWAGE, AND LITTER
                               CHAPTER 361. SOLID WASTE DISPOSAL ACT
                       SUBCHAPTER G. ENFORCEMENT; CRIMINAL AND CIVIL PENALTIES

  § 361.223. Civil Penalties

(a) A person may not cause, suffer, allow, or permit the collection, storage, handling, transportation, processing, or disposal
of solid waste or the use or operation of a solid waste facility to store, process, or dispose of solid waste or to extract
materials under Section 361.092 in violation of this chapter or a rule, permit, license, or other order of the department or
commission, or a county or a political subdivision exercising the authority granted by Section 361.165 in whose jurisdiction
the violation occurs.
(b) Any person who violates any provision of this chapter or any rule, permit, license, or order of the department or
commission, or a county or a political subdivision exercising the authority granted by Section 361.165 in whose jurisdiction
the violation occurs is subject to a civil penalty of not less than $100 or more than $25,000 for each act of violation and for
each day of violation, as the court may deem proper, to be recovered in the manner provided by this section.
(c) A civil penalty recovered in a suit first brought by a local government or governments under this chapter shall be equally
divided between the state and the local government or governments that first brought the suit, and the state shall deposit its
recovery to the credit of the general revenue fund.
(d) The penalties imposed under this section do not apply to failure to pay a fee under Sections 361.134-361.136 or failure to
file a report under Section 361.035. Subsection (c) does not apply to interest and penalties imposed under Section 361.137.

                                                  1990 Main Volume Credit(s)

Acts 1989, 71st Leg., ch. 678, § 1, eff. Sept. 1, 1989.

                                  AMENDMENT BY ACTS 1989, 71ST LEG., CH. 639, § 2

                                                

                                                     HISTORICAL NOTES

                                          HISTORICAL AND STATUTORY NOTES

                                       1990 Main Volume Historical and Statutory Notes

Prior Law:
  Acts 1969, 61st Leg., p. 1320, ch. 405.
  Acts 1977, 65th Leg., p. 2337, ch. 870, § 2.
  Acts 1981, 67th Leg., p. 3170, ch. 831, §§ 1 to 8, 10.
  Acts 1983, 68th Leg., p. 2947, ch. 503, § 3.
  Acts 1985, 69th Leg., ch. 795, § 1.166.
  Acts 1985, 69th Leg., ch. 931, art. 8, § 4.
  Acts 1987, 70th Leg., ch. 279, § 11.

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                         1
§ 361.223. Civil Penalties, V.T.C.A., Health & Safety Code § 361.223

  Vernon’s Ann.Civ.St. art. 4477-7, §§ 8(a)(1), (2), (9); 8(i).
End of Document                                                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.

                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             2
TAB 2

  14
§ 7.102. Maximum Penalty, V.T.C.A., Water Code § 7.102

                                         V.T.C.A., Water Code § 7.102
                              VERNON’S TEXAS STATUTES AND CODES ANNOTATED
                                               WATER CODE
                                   TITLE 2. WATER ADMINISTRATION
                                     SUBTITLE A. EXECUTIVE AGENCIES
                                       CHAPTER 7. ENFORCEMENT
                                      SUBCHAPTER D. CIVIL PENALTIES

  § 7.102. Maximum Penalty

A person who causes, suffers, allows, or permits a violation of a statute, rule, order, or permit relating to Chapter 18, 32, 33,
or 34 of this code or Chapter 366, 371, or 372, Health and Safety Code, shall be assessed for each violation a civil penalty not
less than $50 nor greater than $5,000 for each day of each violation as the court or jury considers proper. A person who
causes, suffers, allows, or permits a violation of a statute, rule, order, or permit relating to any other matter within the
commission’s jurisdiction to enforce, other than violations of Chapter 11, 12, 13, 16, or 36 of this code, or Chapter 341,
Health and Safety Code, shall be assessed for each violation a civil penalty not less than $50 nor greater than $25,000 for
each day of each violation as the court or jury considers proper. Each day of a continuing violation is a separate violation.

                                                          CREDIT(S)

                                              1997 Electronic Pocket Part Update

Added by Acts 1997, 75th Leg., ch. 1072, § 2, eff. Sept. 1, 1997.

                                         HISTORICAL AND STATUTORY NOTES

                                              1997 Electronic Pocket Part Update

1997 Legislation

For application provision of Acts 1997, 75th Leg., ch. 1072, see notes following V.T.C.A., Water Code § 7.051.

End of Document                                                     © 2015 Thomson Reuters. No claim to original U.S. Government Works.

                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               1