Court Opinion

ID: 2872106
Source: CourtListenerOpinion
Date Created: 2015-09-06 04:06:55.598973+00
Date Added: 2024-06-11T11:35:17.354273
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                      NO. 03-05-00006-CV

           Metromedia Restaurant Services, Inc.; S & A Restaurant Corporation;
                       and Steak & Ale of Texas, Inc., Appellants

                                                 v.

Carole Keeton Strayhorn, Comptroller of Public Accounts of The State of Texas, Appellee

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
           GN401090, HONORABLE DARLENE BYRNE, JUDGE PRESIDING

                                          OPINION

               This case involves the requirements to be a “holder” under the Texas statutes

governing unclaimed personal property. It also presents the question of whether a civil judgment

may be taken against a nonparty based on the theory that the nonparty is part of a single business

enterprise with a named party. Appellants Metromedia Restaurant Services, Inc., S & A Restaurant

Corporation, and Steak & Ale of Texas, Inc. appeal the district court’s judgment assessing over

$500,000 in liability against them for failure to remit unclaimed employee wages to the Comptroller

pursuant to Chapter 74 of the Texas Property Code. Metromedia argues that it cannot be held liable

for failure to remit the unclaimed wages because (1) there is insufficient evidence to establish that

it is a “holder” of the unclaimed property as required by property code section 72.001, and (2) the
Comptroller failed to plead a corporate veil-piercing theory, precluding any recovery based on such

a theory. S & A Restaurant Corporation and Steak & Ale of Texas, Inc. argue that they cannot be

held liable in this case because they were not parties to the lawsuit in the trial court. We agree with

each of these points and reverse the judgment.

Facts and Procedural Background

               Steak & Ale of Texas, Inc. and Metromedia Restaurant Services, Inc. are wholly

owned subsidiaries of S & A Restaurant Corporation. S & A Restaurant Corporation is a holding

company that owns a variety of corporations operating restaurants in a number of different states.

Steak & Ale of Texas operates Steak & Ale restaurants in Texas. Metromedia provides home office

administrative services to both S & A Restaurant Corporation and Steak & Ale of Texas, keeps

books and records, and acts as a paymaster for certain employee payments for both entities.

               From time to time, various employees of Steak & Ale of Texas would fail to claim

their wages. After a period of three years, these unclaimed wages were reported and delivered to the

Comptroller.1 The unclaimed property reports were made and the funds were delivered to the

Comptroller on an annual basis by S & A Restaurant Corporation, the parent company of Steak &

Ale of Texas. These reports were prepared by employees of Metromedia on behalf of S & A

Restaurant Corporation. In 2003, the Comptroller conducted an audit of the amounts reported and

remitted by S & A Restaurant Corporation. In the course of the audit, the Comptroller reviewed

       1
          During the time period relevant to this case, all personal property (including unclaimed
wages) was presumed abandoned after three years. See Tex. Prop. Code Ann. § 72.101 (West 1995).
The statute was amended effective January 11, 2003, to provide that unclaimed wages are presumed
abandoned after one year.

                                                  2
financial records of S & A Restaurant Corporation and Steak & Ale of Texas. This review took

place at the offices of Metromedia and the Comptroller was provided access to the books and records

of S & A Restaurant Corporation and Steak & Ale of Texas by Metromedia employees. The audit

revealed that for several years S & A Restaurant Corporation had retained a $15 “processing fee”

for each unclaimed check from the funds it was required to deliver to the Comptroller. There is no

provision in Chapter 74 for the retention by a holder of any portion of the unclaimed property, and

appellants acknowledge that the retention of the processing fees was improper.

               In seeking to recover the improperly retained funds, however, the Comptroller did not

assess S & A Restaurant Corporation—the entity that had delivered the funds to the Comptroller and

reported itself as the “holder” of the funds. Nor did the Comptroller assess Steak & Ale of Texas,

the employer. Instead, the Comptroller assessed Metromedia. Metromedia disputed the assessment

and filed this action in district court seeking declaratory relief. The Comptroller answered and filed

a counterclaim against Metromedia to compel delivery of the improperly retained funds and for

statutory penalties. The Comptroller did not file a claim against S & A Restaurant Corporation or

Steak & Ale of Texas. Neither entity was joined as a party nor entered an appearance in the district

court.

               Prior to trial, the Comptroller sought realignment of the parties and the parties were

realigned by agreed order. Metromedia, now the defendant, answered the Comptroller’s claims. In

its answer, Metromedia asserted, among other things, that it was not a holder of the property in

question and that “other entities have entered into agreements with the Comptroller to remit the

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unclaimed property identified in the Audit Report.” The Comptroller proceeded to trial, electing not

to join either S & A Restaurant Corporation or Steak & Ale of Texas as a party.

                At trial, the Comptroller took the position that Metromedia, S & A Restaurant

Corporation, and Steak & Ale of Texas were all holders of the unclaimed property at issue. The

Comptroller also claimed that Metromedia, the only named defendant, was part of a single business

enterprise with S & A Restaurant Corporation and Steak & Ale of Texas. The Comptroller argued

that if the jury found all three entities were part of a single business enterprise, judgment could be

granted against any one or all of the entities regardless of whether they had been joined as parties to

the suit.

                The jury found that all three entities were holders of the unclaimed property. The jury

also found that Metromedia “operated as a single business enterprise” with both S & A Restaurant

Corporation and Steak & Ale of Texas during the relevant time periods. Based on these jury

findings, the district court entered judgment against all three appellants, jointly and severally, for the

entire amount of the funds that had been improperly retained as well as statutory penalties and

attorneys’ fees.

                Metromedia filed its notice of appeal in the district court and pursued this appeal.

S & A Restaurant and Steak & Ale of Texas did not appear in the district court, electing to appear

in this lawsuit for the first time in this Court.

The Judgment against S & A Restaurant Corporation and Steak & Ale of Texas

                In no case shall judgment be rendered against any defendant unless there has been

service of process, acceptance or waiver of process, or an appearance by the defendant. Tex. R. Civ.

                                                    4
P. 124; Mapco, Inc. v. Carter, 817 S.W.2d 686, 687 (Tex. 1991). It is undisputed that S & A

Restaurant Corporation and Steak & Ale of Texas were not served with process, did not accept or

waive process, and did not appear in the trial court. It is also essential to due process in our civil

justice system that judgment may not be granted in favor or against a party not named in the lawsuit.

Exito Electronics Co., Ltd., v. Trejo, 166 S.W.3d 839, 852 (Tex. App.—Corpus Christi 2005, no pet.

h.); Fuqua v. Taylor, 683 S.W.2d 735, 738 (Tex. App.—Dallas 1984, writ ref’d n.r.e.); Texaco, Inc.

v. Wolfe, 601 S.W.2d 737, 742 (Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.). It is

undisputed here that the Comptroller did not name either S & A Restaurant Corporation or Steak &

Ale of Texas as parties in this lawsuit.

               The Comptroller argues that there was no need to name all of the separate entities in

this lawsuit because the jury found Metromedia operated as a single business enterprise with both

S & A Restaurant Corporation and Steak & Ale of Texas. The Comptroller’s view is that the jury

finding essentially makes all of the entities “one and the same.” Therefore, under this view, naming

any member of an alleged single business enterprise as a defendant has the legal effect of naming

all members. The Comptroller suggests this would be true even though the issue of whether a single

business enterprise exists among the named and unnamed parties has not yet been litigated or

resolved. However, corporate veil-piercing theories such as alter ego or single business enterprise

cannot and do not abrogate the requirements of due process in our judicial system.2 Parties must still

       2
          We do not reach and express no opinion regarding the availability of, viability of, or
circumstances under which a “single business enterprise” theory may be used as a means of piercing
the corporate veil in Texas.

                                                  5
be afforded notice and an opportunity to appear and defend themselves before being subjected to

civil liability. See Tex. R. Civ. P. 124; Mapco, 817 S.W.2d at 687.

               S & A Restaurant Corporation and Steak & Ale of Texas could very well want an

opportunity to be heard on the issue of whether they are involved in a single business enterprise with

Metromedia. They may have defenses that are different from the defenses that best serve

Metromedia or that Metromedia has the ability or standing to present. Even if these parties had

identical interests and identical defenses, they must—as a matter of due process—be afforded an

opportunity to evaluate the claims made by an adverse party and decide for themselves how to

defend. Parties with seemingly identical interests can have significant differences in how to protect

those interests and how to litigate disputes.

               In addition, simply because two entities or two persons are alleged to be members of

some sort of joint enterprise, they will not necessarily have identical or even similar interests in a

dispute involving the joint enterprise. In some circumstances, one member of a potentially liable

group could have an interest not only in ignoring the defense of other alleged jointly liable members,

but in affirmatively seeking to have other members held liable. In such a situation, the appearance

of the named member would certainly not suffice for the defense of unnamed members. Thus, the

appearance of one party alleged to be part of a larger group of related persons or entities cannot

substitute for the appearance and defense of other alleged members of the group.

               If the rule were otherwise, a plaintiff could sue a small subsidiary of any major

corporation, never name the parent company in the suit, litigate with the subsidiary the issue of

whether the parent is in a single business enterprise with the subsidiary, and then obtain a judgment

                                                  6
against the parent. The same would hold true for an individual alleged to be the alter ego of a

corporate entity and vice versa. A plaintiff could litigate the question of whether the corporation is

liable to the plaintiff without ever joining the corporation or litigating the issue with the corporation.

The plaintiff could also litigate whether an individual is liable for the acts of a corporation without

ever suing the individual. Such a procedure is not consistent with due process.

                Even when a plaintiff is alleging that two separate parties are to be treated as one

under the law, a plaintiff is required to name and serve each party sought to be held liable. Each is

entitled to have the opportunity to appear, be heard, and defend. This principle has been applied in

the context of other joint liability theories such as partnership, agency, civil conspiracy, etc. See

Wynne v. Adcock Pipe and Supply, 761 S.W.2d 67, 70 (Tex. App.—San Antonio 1988, writ denied)

(judgment against principal cannot stand where plaintiff joins only agent in the lawsuit individually);

Western Grocery Co. v. K. Jata & Co., 173 S.W. 518, 518 (Tex. Civ. App.—El Paso 1915, no writ)

(judgment cannot stand against a partner who was never a party to suit). The principle is no different

when applied to corporate veil-piercing theories being used to establish joint liability.

                In this case, judgment was entered against two entities that were not defendants in the

lawsuit, were not named or joined, and had never appeared. We hold, therefore, that S & A

Restaurant Corporation and Steak & Ale of Texas were never properly before the court, that the

district court was without jurisdiction to enter judgment against them, and that the judgment against

them is void.

                The Comptroller also argues that S & A Restaurant Corporation and Steak & Ale of

Texas did not file notices of appeal and, therefore, are not entitled to more favorable relief in this

                                                    7
Court than they received in the trial court without a demonstration of just cause. Tex. R. App. P.

25.1(c). We have found that the district court was without jurisdiction to enter judgment against S

& A Restaurant Corporation and Steak & Ale of Texas. Consequently, the judgment is void and the

error is fundamental. See Mapco, Inc. v. Carter, 817 S.W.2d 686, 687 (Tex. 1991). Under these

circumstances, there is just cause to address the error.

“Holder” status of Metromedia

               Chapter 74 of the property code requires a holder of property belonging to someone

else that is unclaimed and presumed abandoned to deliver the abandoned property to the Comptroller

for safekeeping. See Tex. Prop. Code. Ann. §§ 74.301-.304 (West Supp. 2005); State v. Snell, 950
S.W.2d 108, 112 (Tex. App.—El Paso 1997, no pet.). Holders of unclaimed property must report

and deliver the property to the Comptroller on an annual basis. See Tex. Prop. Code Ann. § 74.301.

A holder of unclaimed property under section 72.001 is a person who is (1) in possession of property

that belongs to another, (2) a trustee, or (3) indebted to another on an obligation. Id. § 72.001 (West

Supp. 2005). The Comptroller alleges that Metromedia is a “holder,” as defined in Section 72.001,

of the $15 per check processing fee retained from the unclaimed funds reported and delivered to the

Comptroller by S & A Restaurant Corporation. The Comptroller does not claim Metromedia was

a trustee of the unclaimed property. Therefore, the Comptroller had the burden of proving that

Metromedia is either (1) in possession of the retained funds, or (2) indebted to the employees of

Steak & Ale of Texas for the retained funds. See id.

               Metromedia contends that there is no evidence to establish that it is a “holder” of the

unclaimed wages in question as required by the property code. See id. Courts will sustain a no-

                                                  8
evidence point of error when: (1) the record discloses a complete absence of evidence of a vital fact;

(2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered

to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla;

or (4) the evidence establishes conclusively the opposite of the vital fact. Marathon Corp. v. Pitzner,

106 S.W.3d 724, 727 (Tex. 2003). More than a scintilla of evidence exists when the evidence

supporting the finding as a whole “rises to a level that would enable reasonable and fair-minded

people to differ in their conclusions.” Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711

(Tex. 1997) (quoting Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex. 1995)). If the

evidence of a fact is so weak as to do no more than create a mere surmise or suspicion of its

existence, the legal effect is that it is no evidence. Haynes & Boone v. Bowser Bouldin, Ltd., 896
S.W.2d 179, 183 (Tex. 1995).

               The evidence in this case established that the restaurants operating as subsidiaries of

S & A Restaurant Corporation would deposit the revenue from their sales each day into their

respective bank accounts. At the end of each day, the funds from all of these accounts would be

electronically transferred to a single “concentrated account” owned and controlled by S & A

Restaurant Corporation. Funds would then be transferred from this concentrated account to any

subsidiary’s account upon which checks were drawn when the checks were presented for payment.

This process of transferring out all deposits and transferring in only the amounts necessary to cover

items that were presented for payment occurred daily. Thus, the subsidiary accounts were “zero-

balance accounts”—accounts that showed a zero balance at the close of each business day.

                                                  9
               Metromedia owned such a zero-balance account. There was testimonial evidence that

at least some of the payroll checks that went unclaimed by Steak & Ale of Texas employees were

written on this Metromedia account. There was also evidence showing that if a Steak & Ale of

Texas employee lost a check written on the Metromedia account, the lost check would be reported

to Metromedia and Metromedia would issue another check. In addition, the Comptroller points to

evidence that Metromedia employees calculated the amount of unclaimed property due to be

delivered to the Comptroller for S & A Restaurant Corporation entities operating in Texas (deducting

the $15 processing fee), requested checks be issued by S & A Restaurant Corporation for these

amounts, mailed the S & A Restaurant Corporation checks to the Comptroller, and kept the records

relating to the reporting and delivery of the unclaimed property. The Comptroller argues that this

is some evidence that Metromedia is a holder of the retained funds at issue. We disagree.

               Chapter 74 requires proof that the person being compelled to deliver unclaimed

property is either in possession of the property or indebted to another for the property. Tex. Prop.

Code Ann. § 72.001. Evidence that Metromedia handled payroll responsibilities for S & A

Restaurant Corporation or its subsidiaries and that Metromedia provided administrative services with

respect to the reporting of the unclaimed wages is not evidence that Metromedia is in possession of

the wages or that Metromedia is indebted to the employees for the wages. Evidence to the effect that

funds for claimed wages, i.e. funds for checks presented for payment, would pass through the

Metromedia account is not evidence that Metromedia currently has or ever had in its possession

funds representing the unclaimed wages of Steak & Ale of Texas employees.

                                                10
               There was ample evidence that S & A Restaurant Corporation was a holder and in

possession of the funds in question. Indeed, this fact was undisputed. S & A Restaurant Corporation

reported the unclaimed wages to the Comptroller, paid the unclaimed wages (minus the processing

fee) to the Comptroller, admitted that the monies that were to fund the unclaimed employee checks

were to come out of the concentrated account owned by S & A Restaurant Corporation, and reported

itself to the Comptroller as the “holder.” Nevertheless, the Comptroller elected not to pursue a claim

against S & A Restaurant Corporation.

               The undisputed evidence in the record conclusively establishes that Metromedia was

never in possession of funds from the S & A Restaurant Corporation concentrated account for any

check that was not presented for payment. The wages at issue in this case are those associated with

checks that were never presented for payment and went unclaimed. There is no evidence that

Metromedia has ever been or is currently in possession of the unclaimed wages of Steak & Ale of

Texas employees.

               The Comptroller also argues that, even if Metromedia is not in possession of the

unclaimed wages in question, Metromedia can be held liable as a holder under Chapter 74 under the

theory that it is indebted to the employees who did not negotiate checks written on the Metromedia

account. The evidence offered by the Comptroller to support this argument is testimony that some

of the checks that went unclaimed were written on the Metromedia zero-balance account. This,

standing alone, does not tend to prove that Metromedia is indebted to the employees of Steak & Ale

of Texas for their wages. It is evidence only that Metromedia issued a negotiable instrument payable

to an individual who did not negotiate it. It does not tend to show what entity is indebted to the

employee.

                                                 11
                  The evidence was undisputed and conclusive that the wages in question were for

employees of Steak & Ale of Texas, not employees of Metromedia. The Comptroller offered no

evidence that Metromedia is indebted to employees of Steak & Ale of Texas who have failed to

claim wages for more than three years. In addition, the checks bore the notation that they were void

after either 90 or 180 days. Thus, Metromedia could have no obligation to payees on void checks

unclaimed for three or more years even if the original check could be viewed as creating a debt.

Based on this record, we hold that there is no evidence that Metromedia is a holder of the unclaimed

wages at issue.

The Single Business Enterprise Theory and Metromedia

                  The Comptroller contends that even if Metromedia is not a holder under Chapter 74,

it may be held responsible for the liability of S & A Restaurant Corporation and Steak & Ale of

Texas because the jury found Metromedia to be in a single business enterprise with S & A

Restaurant Corporation and Steak & Ale of Texas. Metromedia argues that the Comptroller did not

plead this theory of liability and it should not have been submitted to the jury. We agree.

                  Texas follows a “fair notice” pleading standard, which looks to whether the opposing

party can ascertain from the pleadings the nature and basic issues of the controversy and what

testimony will be relevant at trial. See Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896

(Tex. 2000). The Comptroller’s First Amended Petition included the following statement upon

which the Comptroller relies for submitting the single business enterprise theory to the jury:

       Defendant is either the assumed name of Steak & Ale of Texas, or the employer of
       restaurant staff at Steak & Ale of Texas restaurants, or the payroll services company

                                                   12
       for Steak & Ale of Texas. In any of those capacities, Defendant is a responsible
       holder under the Unclaimed Property Act.

               This pleading does not give fair notice that the Comptroller was seeking to impose

liability on Metromedia based on the theory that Metromedia was engaged in a single business

enterprise with Steak & Ale of Texas and S & A Restaurant Corporation. It does not refer to the

single business enterprise theory nor does it use words from which a reasonable person could infer

that the single business enterprise theory is the basis of the complaint. It fails to mention S & A

Restaurant Corporation—the alleged corporate parent and controller of the single business

enterprise—at all. It alleges only that Metromedia is either an assumed name for Steak & Ale of

Texas, the employer of Steak & Ale of Texas employees, or the payroll services company for Steak

& Ale of Texas. It then asserts that in any of these capacities Metromedia is a holder under the

unclaimed property statutes. It does not give fair notice that the Comptroller will seek to hold

Metromedia responsible under a corporate veil-piercing theory for the unclaimed property liability

of other holders such as Steak & Ale of Texas or S & A Restaurant Corporation.

               Particular words such as “single business enterprise” do not have to be used for a

pleading to give fair notice in this context. However, a party attempting to impose liability by

piercing the corporate veil of a defendant must plead something that will tell the defendant that it

is facing potential liability on such a basis. Otherwise, the defendant will not have notice of the

nature and basic issues of the controversy that it is facing. Horizon/CMS Healthcare Corp., 34
S.W.3d at 896. In this case, the Comptroller pleaded only that Metromedia is an assumed name for

Steak & Ale of Texas or the employer of the Steak & Ale of Texas’s employees or the payroll

                                                13
company for Steak & Ale of Texas. This does not communicate that the Comptroller will attempt

to hold Metromedia responsible by challenging the corporate separateness of all of the entities and

then proving that S & A Restaurant Corporation or Steak & Ale of Texas are holders. It certainly

does not communicate anything about potential liability for Metromedia based on the “holder” status

of S & A Restaurant Corporation.

               The Comptroller argues that even if the single business enterprise theory was not

pleaded, it was tried by consent. However, Metromedia objected to the inclusion of the single

business enterprise theory in the jury charge prior to submission of the charge to the jury. An

objection, on the record, prior to the submission of the charge to the jury precludes trial by consent.

Texas Indus., Inc. v. Vaughan, 919 S.W.2d 798, 803 (Tex. App.—Houston [14th Dist.] 1996, writ

denied). Therefore, since the single business enterprise theory was not pleaded or tried by consent,

it should not have been submitted to the jury and cannot be the basis for a judgment against

Metromedia as an imputed holder standing in the shoes of S & A Restaurant Corporation or Steak

& Ale of Texas. See Tex. R. Civ. P. 301; Mapco Inc. v. Carter, 817 S.W.2d 686, 688 (Tex. 1991)

(judgment could not be based on alter ego, piercing the corporate veil, or agency theory without

pleadings to support these theories); Texas Indus., 919 S.W.2d at 803 (a trial court may not submit

a question to the jury unless it is supported by the pleadings or tried by consent).

Attorneys’ Fees and Statutory Penalties

               Since we find that there is no basis to hold Metromedia liable under the unclaimed

property statutes in this case, there is no basis for the imposition of statutory penalties on

Metromedia or an award of attorneys’ fees in favor of the Comptroller pursuant to property code

                                                  14
section 74.709. Consequently, the award of statutory penalties and attorneys’ fees in favor of the

Comptroller is reversed.

               In addition, because the trial court entered judgment against Metromedia in this

matter based on a finding of liability under the unclaimed property statutes, the trial court did not

reach or consider Metromedia’s request for an award of attorneys’ fees under the Declaratory

Judgments Act. Therefore, we remand this cause for a determination of whether attorneys’ fees are

available to either Metromedia or the Comptroller under the Declaratory Judgments Act.

Conclusion

               We reverse the judgment of the district court as to all appellants, hold that the

judgment against S & A Restaurant Corporation and Steak & Ale of Texas is void, and render a take-

nothing judgment in favor of Metromedia. We also remand to the trial court the issue of whether

attorneys’ fees should be awarded to either Metromedia or the Comptroller pursuant to the

Declaratory Judgments Act.

                                              G. Alan Waldrop, Justice

Before Justices B. A. Smith, Patterson and Waldrop

Reversed and Rendered in Part; Reversed and Remanded in Part

Filed: February 10, 2006

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