Court Opinion

ID: 3181783
Source: CourtListenerOpinion
Date Created: 2016-03-02 07:24:16.753618+00
Date Added: 2024-06-11T12:22:27.859109
License: Public Domain

Opinion issued March 1, 2016

                                     In The

                              Court of Appeals
                                    For The

                          First District of Texas
                            ————————————
                              NO. 01-14-00305-CV
                           ———————————
            ROBERT HOVEL AND TANIA HOVEL, Appellants
                                       V.
                            GAL BATZRI, Appellee

                   On Appeal from the 234th District Court
                           Harris County, Texas
                     Trial Court Case No. 2013-43259A

                           DISSENTING OPINION

      There is an aphorism: “You can ignore reality, but you cannot ignore the

consequences of ignoring reality.” This case requires this Court to determine

whether, under Texas Tax Code section 171.255, appellee Gal Batzri, the sole

shareholder, officer, and director of 7677 Real Street, L.L.C. (“7677”), should be
held liable to appellants Robert and Tania Hovel for the torts of negligent

misrepresentation and fraud committed against them by 7677 that were reduced to

a liquidated judgment debt against the corporation after it forfeited its corporate

charter. The majority has chosen to ignore the reality of seventy unbroken years of

the Texas Supreme Court’s and appellate courts’ consistent construction of section

171.255 and to substitute its own alternative meaning of the statute’s terms under

its own chosen rules of construction.

      The purpose of section 171.255, as clearly stated by the Texas Supreme

Court in 1946 and unchanged since then, is to prevent wrongful acts by culpable

corporate directors and officers and to protect the public—particularly those who

deal with corporations—by imposing personal liability on those officers for “debts

of the corporation . . . created or incurred” after forfeiture of the corporate charter

as a result of such wrongful acts. The Texas Supreme Court has required “strict

construction” of the terms of section 171.255 to ensure that culpable corporate

officers and directors are held liable for debts of the corporation created or incurred

after forfeiture of a corporate charter to the same extent that a culpable partner may

be held liable for the debts of a general partnership, including being held

personally liable for wrongful acts of the corporation that occurred before

forfeiture but were reduced to a debt of the corporation after forfeiture, as here.

                                          2
Following that law, I would reverse the trial court’s judgment and render judgment

in the Hovels’ favor.

      The majority in this case holds just the opposite. Based on its own new

construction of the terms of section 171.255 under its own rules, the majority

affirms the trial court’s judgment and absolves Batzri from liability to the Hovels

for 7677’s judgment debt for fraud and negligent misrepresentation, effectively

preventing them from recovering redress for the wrongs done to them.

      Both the majority’s reasoning and its holding are exactly contrary to all

precedent and to the statute’s clear meaning and purpose. Although recognizing

that Texas Supreme Court law requires that section 171.255 of the Tax Code be

strictly, or narrowly, construed in accordance with its language, the majority

reasons that section 171.255 is not an unambiguous civil liability statute that must

be strictly construed to impose liability on culpable corporate officers to prevent

corporate wrong-doing, as the statute itself states. Rather, section 171.255 is an

ambiguous “penal” statute that must be broadly construed to protect culpable

officers under the virtually obsolete canon of construction of ambiguous criminal

statutes known as “the rule of lenity”—a rule of construction which requires broad

construction of ambiguous criminal statutes in favor of criminal defendants.

      Accordingly, Batzri, viewed leniently as a criminal defendant, is not liable

for 7677’s debt to the Hovels, since the corporation’s wrongful acts of fraud and

                                         3
negligent misrepresentation against the Hovels occurred prior to forfeiture of the

corporate charter; it is those pre-forfeiture wrongful acts—not the post-forfeiture

liquidated judgment entered on them—that constitute the “debt” of the corporation

under section 171.255; and, under the plain language of section 171.255, corporate

officers cannot be held personally liable for pre-forfeiture corporate debts. The

public doing business with a corporation that commits a wrongful act and then

forfeits its charter so that no judgment or penalty can be enforced against it must

bear the loss—not the responsible officers and directors of the corporation.

      The result is an opinion that contravenes the purpose and plain language of

section 171.255, the previously uniform history of the statute’s construction, and

the policy of the state of Texas. It also creates a conflict with all other Texas

Courts of Appeals—including the Texas Supreme Court and our sister court, the

Fourteenth Court of Appeals. This act of judicial will renders the law unreliable,

puts this Court at odds with all other courts, wastes judicial resources, and greatly

increases the delay and costs of litigation in this case, even as it invites review and

reversal. Those are the consequences of ignoring the reality of the law.             I,

therefore, dissent.

      I would reverse the judgment of the trial court in favor of Batzri and render

judgment in favor of the Hovels.

                                          4
                                Background Facts

      Because the majority opinion does not include all facts necessary for the

proper disposition of this appeal, the material facts and their significance are

restated below.

      In 2008, the Hovels hired 7677 to build a house for them. Batzri was 7677’s

sole shareholder, director, and president. After discovering numerous construction

defects in the home, the Hovels filed a lawsuit in February 2010 against 7677 and

others, asserting breach of contract, violation of the Deceptive Trade Practices Act,

and other related causes of action. 7677 subsequently failed to pay its franchise tax

and thus forfeited its charter on March 25, 2011, and its corporate privileges on

July 29, 2011.

      Almost two years after 7677’s forfeiture of its charter, the case was tried to a

jury on March 18, 2013. 7677 did not appear at trial. The trial court therefore

granted a default judgment against 7677 on March 28, 2013, and the trial

proceeded against other defendants. The jury found that 7677, alone among the

several defendants, committed fraud and statutory fraud against the Hovels, and it

awarded them $59,000 in compensatory damages to repair their home. The jury

also found that 7677 made a negligent misrepresentation on which the Hovels

justifiably relied and was 100% liable for any negligent misrepresentation, and it

awarded the Hovels $59,000 for “[t]he difference . . . between the value of what

                                          5
the Hovels received in the transaction and the purchase price or value given.” It

also awarded them $183,000 for “[t]he economic loss . . . otherwise suffered in the

past as a consequence of the Hovels’ reliance on the misrepresentation.”

      On April 29, 2013, the trial court rendered its final judgment memorializing

the default judgment against 7677 and incorporating by reference the jury charge

and the jury findings, which the court acknowledged it had “received, filed, and

entered of record.” The judgment stated that it “finally disposes of all claims and

all parties and is appealable,” and it ordered that execution issue against 7677.

      On July 24, 2013, the Hovels filed this suit against Batzri personally,

alleging that he had fraudulently transferred assets to avoid paying the judgment

against 7677 and that he could be held personally liable for 7677’s judgment debt

under Tax Code section 171.255. Following the filing of the underlying suit

against him personally, on August 2, 2014, Batzri sought to reinstate 7677’s

charter, shorn of the judgment debt to the Hovels.

      On cross-motions for summary judgment, the trial court granted summary

judgment in favor of 7677 and Batzri, holding him not liable for 7677’s judgment

debt to the Hovels, and it denied the Hovels’ cross-motion on the ground that the

“debt” was incurred before the forfeiture of corporate privileges—an error the

majority repeats.

                                          6
                                     Discussion

      The resolution of this case turns on whether 7677’s “debt” to the Hovels was

the judgment debt incurred by 7677 two years after it forfeited its charter or an

unliquidated “debt” created by 7677’s wrongful acts of fraud and negligent

misrepresentation committed by 7677 before it forfeited its charter and several

years before that “debt” was reduced to the Hovels’ tort claims against 7677 and

tried to a money judgment against the corporation. The trial court and the majority

say that 7677’s “debt” to the Hovels was “created or incurred” at the time 7677

committed its wrongs of negligent misrepresentation and fraud against the Hovels,

before 7677’s forfeiture of corporate privileges, and thus Batzri is not liable for the

debt. However, seventy years of construction of section 171.255 and its

predecessor statute say that the debt was incurred when the Hovels’ claims against

7677 were reduced to an enforceable liquidated obligation of the company in the

form of a money judgment two years after 7677 forfeited its corporate charter.

Following the law as historically developed, I would construe section 171.255 in

accordance with its language and express purpose, and I would hold Batzri

personally liable for the damages awarded to the Hovels in their judgment against

7677. The majority does the opposite.

                                          7
                   Construction of Tax Code Section 171.255

      The first questions to be answered in construing Tax Code section 171.255

are (1) what is a “debt of the corporation” and (2) when is a debt “created . . . or

incurred” for purposes of the section? The final question is whether the money

judgment obtained by the Hovels against 7677 two years after forfeiture of its

corporate charter is a post-forfeiture debt of 7677 enforceable against Batzri, the

sole officer and director of 7677, under section 171.255.

A.    Standard of Review of Statutory Construction

      The primary objective of a court in construing a statute is to give effect to

the legislature’s intent. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006); Tex.

Prop. & Cas. Ins. v. Brooks, 269 S.W.3d 645, 649 (Tex. App.—Austin 2008, no

pet.). In deriving intent, we rely on the plain meaning of the statutory text unless a

different meaning is supplied by legislative definition or is apparent from the

context, or the construction leads to absurd results. City of Rockwall v. Hughes,

246 S.W.3d 621, 625–26 (Tex. 2008); Brooks, 269 S.W.3d at 649.

      Texas has long recognized that “the entire statute is intended to be

effective,” that “a just and reasonable result” is intended, and that the “public

interest is favored over any private interest.”          TEX. GOV’T CODE ANN.

§ 311.021(2), (3), (5) (West 2013); see Brooks, 269 S.W.3d at 649. Therefore, in

construing a statute, “we give effect to all its words” and avoid rendering any

                                          8
redundant or “mere surplusage.” Shumake, 199 S.W.3d at 287. Under the Texas

Code Construction Act, courts are permitted to consider, among other things,

(1) the object sought to be obtained by the statute, (2) the circumstances under

which the statute was enacted, (3) the legislative history of the statute, (4) common

law or former statutory provisions including law on the same and similar subjects,

and (5) the consequences of a particular construction. TEX. GOV’T CODE ANN.

§ 311.023 (West 2013).

B.    Tax Code Section 171.255

      Tax Code section 171.255 provides, in relevant part:

      (a) If the corporate privileges of a corporation are forfeited for the
      failure to . . . pay a tax or penalty, each director or officer of the
      corporation is liable for each debt of the corporation that is created
      or incurred in this state after the date on which the report, tax, or
      penalty is due1 and before the corporate privileges are revived. The
      liability includes liability for any tax or penalty imposed by this
      chapter on the corporation that becomes due and payable after the
      date of the forfeiture.

      (b) The liability of a director or officer is in the same manner and to
      the same extent as if the director or officer were a partner and the
      corporation were a partnership.

      (c) A director or officer is not liable for a debt of the corporation if
      the director or officer shows that the debt was created or incurred:

1
      For simplicity, I have used the terms “pre-forfeiture” and “post-forfeiture”
      throughout to refer to acts that occurred, in the precise terms of the statute, before
      and after “the date on which the report, tax, or penalty is due and before the
      corporate privileges are revived.” See TEX. TAX CODE ANN. § 171.225(a) (west
      2015).

                                            9
             (1)   over the director’s objection; or

             (2) without the director’s knowledge and that the exercise of
             reasonable diligence to become acquainted with the affairs of
             the corporation would not have revealed the intention to create
             the debt.

TEX. TAX CODE ANN. § 171.255 (a)–(c) (West 2015) (emphasis added).

      Under subsection 171.255(a), enforceable obligations or “debt[s] . . . created

or incurred” before forfeiture of a corporate charter (more precisely, in terms of the

statute, created or incurred before the date a tax or penalty was due but was not

paid, resulting in forfeiture of the charter) are not enforceable against corporate

officers or directors after forfeiture of the charter. See id. § 171.255(a). This

provision reflects the corporate shield doctrine.      See Willis v. Donnelly, 199
S.W.3d 262, 271 (Tex. 2006) (“A bedrock principle of corporate law is that an

individual can incorporate a business and thereby normally shield himself from

personal liability for the corporation’s contractual obligations”); see Portlock v.

Perry, 852 S.W.2d 578, 582 (Tex. App.—Dallas 1993, writ denied) (“The general

rule of corporate law is that officers of a corporation are insulated from personal

liability arising from their activities performed in the scope of their duties for the

corporation.”) (citing Delaney v. Fidelity Lease Ltd., 526 S.W.2d 543 (Tex. 1975)).

However, a corporate officer may be held individually liable for a corporation’s

tortious conduct if he knowingly participates in the conduct or has either actual or

                                         10
constructive knowledge of it. Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d
369, 375 (Tex. 1984).

      Reflecting these bedrock principles of corporate law, subsection 171.255(b)

provides that a director or officer of a corporation may be held personally liable for

a debt of the corporation created or incurred after forfeiture of the corporate charter

“in the same manner and to the same extent as if the director or officer were a

partner and the corporation was a partnership.” See TEX. TAX CODE ANN. §

171.255(b); TEX. BUS. ORGS. CODE ANN. § 152.304 (West 2012) (In general, “all

partners are jointly and separately liable . . . for all obligations of the partnership

unless otherwise provided by law.”); see U.S. Rest. Props. Operating L.P. v. Motel

Enters., Inc., 104 S.W.3d 284, 293 (Tex. App.—Beaumont 2003, pet. denied)

(partners are jointly and severally liable for debts of general partnership).

However, under subsection 171.255(c) the defendant officer or director must have

actual or constructive knowledge of the wrongful acts giving rise to the “tax or

penalty” incurred as an enforceable debt after forfeiture and must not have

objected to those acts. See TEX. TAX CODE ANN. § 171.255(c).

       Because an officer or director of a corporation with knowledge of a debt of

the corporation wrongfully created or incurred after forfeiture is jointly and

severally liable for the debt, the questions of what constitutes a “debt” of the

                                          11
corporation and when the debt is “created or incurred” are of paramount

importance in construing section 171.255.

C.    The Strict Construction Rule for Construing “Debt . . . Created or
      Incurred” in Section 171.255(a) and the “Relation-Back” Doctrine

      1.    Schwab and Silberstein and the strict construction rule

      Texas case law prior to this case has consistently defined the “debt” of a

corporation, as used in section 171.255, as “any legally enforceable obligation

measured in a certain amount of money which must be performed or paid within

an ascertainable period of time or on demand.” Taylor v. First Cmty. Credit

Union, 316 S.W.3d 863, 867 (Tex. App.—Houston [14th Dist.] 2010, no pet.)

(quoting Act of May 30, 1987, 70th Leg., R.S., ch. 324, § 1, 1987 Tex. Gen. Laws

1734, 1735 (defining “debt” as used in chapter 171 as formerly codified in Tax

Code section 171.109(a)(3)), repealed by Act of May 2, 2006, 79th Leg., 3rd C.S.,

ch. 1, § 5, 2006 Tex. Gen. Laws 1, 23) (emphasis added).

      Taylor, decided in 2010, defined “debt” in the language of a statutory

definition added to Tax Code Chapter 171 in 1987 and repealed effective 2008 as

part of a recodification of Chapter 171 unrelated to section 171.255. In doing so,

however, it relied on an unbroken history of binding case law construing section

171.255 and defining “debt” as an enforceable financial obligation of the

corporation that now dates back seventy years to the Texas Supreme Court case of

Schwab v. Schlumberger Well Surveying Corp., 198 S.W.2d 79 (Tex. 1946).

                                       12
      In Schwab, the Texas Supreme Court construed the language “debt . . .

created or incurred” with respect to the predecessor of section 171.255 to

determine whether an officer of a corporation that had forfeited its charter could be

held personally liable for payment of a promissory note of the corporation—that is,

a legally enforceable obligation of the corporation measured in a certain amount of

money—that was renewed after forfeiture of the charter. 198 S.W.2d at 80–82; see

Taylor, 316 S.W.3d at 867. In construing the statute, the supreme court opined that

“statutes . . . making the directors or other officers of a corporation liable for its

debts where they are guilty of official delinquencies . . . though held to be remedial

in some instances, are also penal in nature, and it is generally held that they must

be strictly construed and cannot be extended beyond the clear import of their

language.” Schwab, 198 S.W.2d at 80–81 (emphasis added).

      The court reasoned that the word “created” means “[t]o bring into

existence,” while the word “incurred” means “[b]rought on, occasioned, or

caused.” Id. Using these definitions, the court held that no new debt of the

corporation was created or incurred after forfeiture of the corporate charter and that

the predecessor to section 171.255 had “no application to the renewal of

obligations arising prior thereto” and therefore did not impose liability on

corporate officers for such debts. See id. at 81–82. The court refused to hold the

officer of the corporation whose charter had lapsed personally liable on the

                                         13
promissory note renewed after forfeiture because the note merely renewed an

enforceable financial obligation of the corporation incurred in the regular course of

business prior to forfeiture and was not attributable to “official delinquencies.” Id.

      The Schwab court explained its construction of section 171.255 in

accordance with “the clear import of [its] language” as appropriate to effectuate the

purpose of the statute, stating, “The statute was meant to prevent wrongful acts of

culpable officers of a corporation, and was for the protection of the public and

particularly those dealing with the corporation.” Id. (emphasis added). The “strict

construction” rule pronounced in Schwab provides that section 171.255 “cannot be

extended beyond the clear import of [its] language” so that the purpose of the

statute is achieved: to protect officers and directors of a corporation that has

forfeited its charter from joint and several liability for the debts of the corporation

only insofar as those debts arose from activities performed in the scope of their

duties and, therefore, insulated those officers and directors from personal liability.

See id. at 81; see also Portlock, 852 S.W.2d at 582 (stating general rule of liability

of corporate officer). This strict construction rule has been consistently followed

through the history of the construction of section 171.255—until now.

      Twenty years after Schwab, the Texas Supreme Court again read section

171.255 strictly in accordance with its plain language and purpose. In that case,

however, it held officers and directors of a franchisee corporation that had forfeited

                                          14
its charter liable for a liquidated corporate debt of $1,867.58 incurred for the

purchase of merchandise for the corporation four years after forfeiture. See First

Nat’l Bank of Boston v. Silberstein, 398 S.W.2d 914, 915 (Tex. 1966). Citing

subsections 171.255(a) and (c), the supreme court stated, “[P]ersonal liability is

determined by the acts of [the directors and officers] in consenting to and

approving the debts of the corporation where [it] is shown to have come to them in

the regular course of business of the corporation” after forfeiture of the corporate

charter. Id. at 916.

      In 1992, the Austin Court of Appeals contrasted statutes imposing a

corporate franchise tax—which are to be liberally construed in favor of the

taxpayer to effectuate their purpose as revenue statutes—and “statutes making

directors and officers liable for corporate debts,” like section 171.255, which “must

be strictly construed and cannot be extended beyond the clear meaning of their

language.” Wilburn v. State, 824 S.W.2d 755, 760 (Tex. App.—Austin 1992, no

writ) (citing Schwab, 198 S.W.2d at 81). The Wilburn court further pointed out

that “because § 171.255 is penal in nature, it must be strictly construed to protect

those individuals against whom liability is sought.” Id. at 760–61. Thus, it held a

corporate officer liable under section 171.255 for debts wrongfully created or

incurred after the date franchise taxes were due. Id. at 761–62. The next year, the

Austin Court of Appeals, using the same reasoning and reciting the same law in

                                         15
essentially the same situation, reached the same result. Davis v. State, 846 S.W.2d
564, 570–72 (Tex. App.—Austin 1993, no writ) (strictly construing statute and

holding corporation’s sole shareholder, president, and director liable for unpaid

franchise taxes, penalties, and interest incurred in corporation’s name after

forfeiture of corporate privileges).

      Up until the present, section 171.255 has consistently been strictly construed

to ensure that an officer or director of a corporation that has forfeited its corporate

charter is held personally liable only for a “debt” of the corporation, narrowly

defined as an enforceable liquidated obligation of the corporation that is “created

or incurred” after forfeiture for a wrongful act of the corporation of which the

defendant had knowledge. See In re Trammell, 246 S.W.3d 815, 821–22 (Tex.

App.—Dallas 2008, pet. denied) (refusing to extend liability under section 171.255

beyond meaning of language and applying strict construction rule in holding that

directors and officers of corporation may lose protection from liability provided by

corporate form and become liable in same manner and to same extent as partner in

partnership); PACCAR Fin. Corp. v. Potter, 239 S.W.3d 879, 882–83 (Tex. App.—

Dallas 2007, no pet.) (strictly construing statute and holding officers and directors

of corporation that had forfeited charter not liable for corporate debt created at time

when they were not officers and directors); cf. Williams v. Adams, 74 S.W.3d 437,

440–41 (Tex. App.—Corpus Christi 2002, pet. denied) (explaining that strict

                                          16
construction “refuses to expand the law by implications or equitable

considerations,” but rather confines interpretation of law to cases within its letter

and spirit, resolving reasonable doubts against “applicability . . . to [a] particular

case”; observing that purpose of statute was to prevent “wrongful acts of culpable

officers”; and refusing to attribute to corporate officers “negligence liability” for

“unintentional torts” of corporation).

      In none of this history is there any indication that the term “debt” in section

171.255(a) is to be construed broadly so that it is “created or incurred” when the

corporation commits a wrongful act, as the majority holds. Nor is there any

indication that section 171.255 is to be construed in accordance with the criminal

law rule of lenity to protect corporate officers and directors from personal liability

for wrongful acts of the corporation of which they had knowledge, including

intentional torts of the corporation, that result in a liquidated corporate obligation

after forfeiture of the corporate charter. Rather, the established law is exactly the

opposite.

      The requirements of strict construction do, however, create a tension

between section 171.255’s protection of corporate officers from liability for

enforceable obligations of the corporation created or incurred as a result of the

corporate officers’ activities within the scope of their duties in creating enforceable

obligations of the corporation before forfeiture that are liquidated after forfeiture

                                          17
and its imposition of personal liability on corporate officers for liquidated debts of

the corporation incurred after forfeiture as a result of wrongful acts of the

corporation prior to forfeiture. The courts have resolved this tension by developing

the “relation-back doctrine.”

      2.     Curry and Cain and the “relation-back doctrine”

      Schwab’s strict construction rule requires both (1) that the phrase “debt . . .

created or incurred” in section 171.255(a) must be strictly construed to hold

“culpable officers” and directors of a corporation liable only for “debts . . . created

or incurred” after forfeiture of the corporate charter to prevent wrongful acts of the

corporation and (2) that the term “debt” must likewise be strictly construed as a

legally “enforceable obligation measured in a certain amount of money,” in spite of

the reality that not all lawful debts of a corporation are liquidated or reduced to a

sum certain prior to forfeiture.

      In 1994, in Cain v. State, the Austin Court of Appeals addressed the courts’

resolution of the tension, discussing at length the historical development of the

strict construction of section 171.255. 882 S.W.2d 515, 516–18 (Tex. App.—

Austin 1994, no writ). In reciting that history, starting with Schwab, the Cain court

stated, “In legal usage, the word ‘debt’ refers ordinarily to a liquidated money

obligation that is legally enforceable by the owner; that is to say, the legally

enforceable obligation must be for a sum certain in money.” Id. at 516 n.1 (citing

                                          18
Seay v. Hall, 677 S.W.2d 19, 23 (Tex. 1984)) (emphasis in original). It pointed out

that Schwab had concerned “a corporate obligation on open account—a liquidated

sum and therefore an obvious ‘debt’ in legal usage.’” Id. at 516. However, some

corporate debts lawfully incurred or created in the regular course of business prior

to forfeiture were not reduced to a sum certain until after forfeiture. Therefore, the

question arose whether corporate officers could be held liable for those debts,

given the strict legal definition of “debt” applicable to section 171.255 cases.

      The Cain court focused its analysis of this problem on Curry Auto Leasing,

Inc. v. Byrd, 683 S.W.2d 109 (Tex. App.—Dallas 1984, no writ), which it credited

with first explicitly applying the rule of “strict construction” of the term “debt”

employed in Schwab together with “the relation-back doctrine” to determine

whether the officers and directors of a corporation that had forfeited its corporate

privileges could be held liable under section 171.255 for a contractual obligation of

the corporation that was entered in the scope of their duties before forfeiture of the

corporate charter but was not liquidated until after forfeiture. Id. at 517.

      The relation-back doctrine, as expressed in Cain and Curry, holds that

“[w]hen parties enter into a contract the law presumes they intend the

consequences of its performance. It follows that performance or implementation

of the contractual provisions relate back to and are authorized at the time of

                                          19
execution of the contract.” Id. (quoting Curry, 683 S.W.2d at 112) (emphasis

added in Cain).

      In Curry, a corporation entered a car-lease agreement in the regular course

of business and breached it before forfeiture of its corporate charter, but the sums

owed to the non-breaching party were not calculable until after the sale of the

leased car, and that sale did not occur until after forfeiture of the corporate charter;

thus, although an enforceable lease contract was entered in the regular course of

business before forfeiture, no liquidated obligation came into existence until after

forfeiture. See Curry, 683 S.W.2d at 110–11. The Curry court held that the

officers and directors were not liable for the deficiency on the sale, reasoning that

“performance or implementation of the contractual provisions relate[d] back to

and [were] authorized at the time of execution of the contract.” See Cain, 882
S.W.2d at 517 (quoting Curry, 683 S.W.2d at 112). In other words, the debt

incurred was within the scope of the officers’ duties at the time it was created.

Thus, for purposes of section 171.255, the contractual debt was created or incurred

on the date of execution of the car-lease contract—which was a legally enforceable

agreement to pay money satisfying the “strict construction” of the term “debt”—

and was not enforceable against corporate officers and directors after forfeiture of

the corporate charter. Curry, 683 S.W.2d at 112.

                                          20
      The Cain court observed, “Other decisions have followed Curry in its

application of the rule of ‘strict construction’ and the relation-back doctrine. In

these decisions also, the corporation breached its contract before forfeiture but

damages were not calculable or liquidated until after forfeiture of corporate

privileges.” 882 S.W.2d at 517 (citing McKinney v. Anderson, 734 S.W.2d 173

(Tex. App.—Houston [1st Dist.] 1987, no writ); River Oaks Shopping Ctr. v.

Pagan, 712 S.W.2d 190 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.);

Rogers v. Adler, 696 S.W.2d 674 (Tex. App.—Dallas 1985, writ ref’d n.r.e.)). The

court observed:

      A common feature of Curry and the subsequent decisions is they
      (1) assume the word “debt” carries a narrow, restricted meaning of a
      liquidated money obligation that is legally enforceable but (2) apply
      the relation-back doctrine to hold against personal liability of officers
      and directors notwithstanding that assumption. Unless the courts
      acted under that assumption, the relation-back doctrine is
      meaningless.

Id. (emphasis in original).

      The Cain court stated, “All the relevant decisions after Schwab turn on the

rule of statutory construction known as the ‘strict construction’ rule coupled with

the relation-back doctrine.” Id. It pointed out,

      Schwab adhered to the narrow or strict meaning of the word “create”
      and operated, moreover, on the assumption that the word “debt” also
      was similarly restricted to its technical meaning of a liquidated
      obligation that was legally enforceable against the corporation. The
      subsequent decisions mentioned previously also operated on that
      assumed meaning in applying the relation-back doctrine.

                                         21
Id. at 518.

      Cain itself, however, like this case, presented the opposite situation from

that in Curry for which the relation-back doctrine was devised—one in which a

liquidated financial penalty was incurred by a corporation after forfeiture of its

charter for wrongful acts of the corporation that occurred prior to forfeiture. In

Cain, after ordering an oil-well operator corporation to plug a number of oil wells,

which it failed to do, the Texas Railroad Commission authorized the expenditure of

State funds to plug the wells. Id. at 516. Six months later, the corporation

forfeited its corporate charter for failure to file its franchise-tax report.       Id.

Subsequently, the Commission paid nearly $50,000 to plug the wells and then

sought to collect the state funds it had spent from Cain, an officer and director of

the corporation. Id.

      The court observed that Cain was “contend[ing] for a liberally expanded

interpretation of the words ‘debt’ and ‘create’ so that they encompass legal

obligations of all kinds, rather than liquidated money obligations only”—exactly

like Batzri and the majority in this case. See id. at 519. But, the court concluded,

      So far as we are able to find, the word “debt” as used in [section
      171.255] has never been thought to include an obligation that is
      unliquidated. Indeed, it is difficult to see how such a meaning could
      be assigned the word if it is required to be construed strictly, that is to
      say, narrowly, literally, and technically.

                                          22
Id. That being the case, the Cain court held that the relation-back doctrine did not

apply to protect Cain from liability under section 171.255 for the penalty incurred

after forfeiture based on the wrongful acts of the corporation before forfeiture.

Notably, with respect to this case, it did not describe the strict construction rule in

terms of the rule of lenity but in terms of its opposite.

      Thus, under Curry and its progeny, money owed, or a liquidated debt

incurred after forfeiture of a corporate charter on a legally enforceable contractual

obligation of a corporation lawfully created in the exercise of corporate officers’

duties before forfeiture relates back to the creation of the enforceable obligation,

even though the debt is not liquidated or not fully liquidated before forfeiture, and

corporate officers are not personally liable for the debt. And under Cain and its

progeny, financial penalties and money judgments incurred as enforceable

liquidated obligations of a corporation after forfeiture of its corporate charter due

to the wrongful acts of the corporation, occurring either before or after forfeiture,

do not relate back to the date of the unlawful act that generated the post-forfeiture

penalty or judgment, and liability for the debt may be imposed upon the

corporation’s culpable corporate officers and directors under section 171.255.

                                           23
      3.     Historical application of the “strict construction” rule and the
             “relation-back” doctrine

      Since the time of Curry and Cain, the Texas appellate courts have

consistently applied the strict construction rule and the relation-back doctrine as

stated above.

      In 1994, two months before deciding Cain, the Austin Court of Appeals,

strictly construing section 171.255, held that a corporation’s directors and officers

were personally liable for penalties assessed against the corporation after forfeiture

of its charter, holding that the “debt” was created or incurred when the Texas

Railroad Commission assessed the penalties. Jonnet v. State, 877 S.W.2d 520, 524

(Tex. App.—Austin 1994, writ denied). In Jonnet, as in the subsequent decision in

Cain, the court held that, for purposes of section 171.255(a), the corporation’s debt

for failure to pay an administrative penalty assessed by the Texas Railroad

Commission was “created or incurred” on the date the Commission entered an

order directing the corporation to pay the administrative penalty, after forfeiture,

and not on the date, nearly four years earlier, when the corporation began violating

an administrative rule requiring that oil wells be plugged. Id. at 523–24. The court

refused to apply the relation-back doctrine, holding that the penalties assessed by

the Commission were based not just on the corporation’s initial violation of a

Commission rule on a given date, but on its “ongoing violation of [the rule], which

continued day after day for nearly four years.” Id. at 524. Thus, it held that, unlike

                                         24
cases to which the relation-back doctrine applies “in which the debt can be said to

relate back to a single date—the date of the written instrument [creating the

debt]—the conduct underlying the Commission’s order is of a continuous nature,

with no single date to which the penalty can relate back.” Id. The court held the

officers and directors liable for the penalty in their individual capacities under

section 171.255(a). Id.

      The Jonnet concurrence—authored by the same judge who would author

Cain two months later—would have reached the same conclusion on different

grounds by inquiring into the legislature’s intended meaning of the word “debt” in

section 171.255. The concurrence pointed out that the word “debt” can have

various meanings; “[i]n legal usage, however, the word ‘debt’ carries a narrower,

restricted, and technical meaning,” namely “a liquidated money obligation that is

legally enforceable.” Id. at 525 (Powers, J., concurring) (emphasis in original)

(citing Seay, 677 S.W.2d at 23; 26 C.J.S. Debt 6 (1956)). It then pointed out that

“[a]bsent legislative intent to the contrary, or other evidence of a different

meaning, legal terms in a statute are presumed to have been used in their legal

sense.” Id. (citations omitted). Moreover, “the word ‘debt’ must be confined to its

narrow, restricted, and technical or legal sense because the statute and its operation

are ‘penal in nature.’” Id.

                                         25
      The Jonnet concurrence cited Schwab, 198 S.W.2d at 81, and Curry, 683
S.W.2d at 112, as both employing the strict legal definition of “debt” and observed

that “[o]ther decisions have followed Curry and Schwab with almost no real

discussion of the ‘strict construction’ rule and the relation-back doctrine,” but, in

each, “the corporation had breached its contract before forfeiture but the resulting

damages remained unliquidated until after forfeiture of corporate privileges.” Id. at

525–26. Finally, it pointed out that “[a] chief feature of these decisions, as in

Curry, is their assumption that the word ‘debt’ carries its narrow, restricted

technical or legal meaning of a liquidated money obligation that is legally

enforceable.” Id. at 526. The relation-back doctrine was thus required to preserve

the “strict construction” rule of Schwab that a “debt” for which corporate directors

and officers may be held liable under section 171.255 is a liquidated money

obligation that becomes legally enforceable after forfeiture of the corporate charter

and not one incurred before that.         See id. Thus, the Jonnet concurrence’s

application of the “strict construction” doctrine is, like Cain’s, exactly the opposite

of the majority’s in this case.

      Since these cases were decided, the Texas courts have consistently, until

now, defined the term “debt” in section 171.255(a) as a legally enforceable

liquidated obligation, and they have consistently applied the relation-back doctrine

to save officers and directors from liability under 171.255 for legally enforceable

                                          26
financial obligations of a corporation created or incurred in the scope of their

duties before forfeiture of the corporate charter, even if those obligations were not

liquidated until after forfeiture. But they have never held that section 171.255

protects culpable officers of a corporation from liability for penalties or judgments

incurred after forfeiture as enforceable liquidated financial obligations of the

corporation due to wrongful acts of the corporation before or after forfeiture.

      Skrepnek v. Shearson Lehman Bros., Inc., 889 S.W.2d 578 (Tex. App.—

Houston [14th Dist.] 1994, no writ), is illustrative. There, the Fourteenth Court of

Appeals, strictly construing section 171.255, held Skrepnek, a broker and officer of

Panterra Resources, Inc. (“PRI”), individually liable in fraud under section 171.255

for a judgment rendered against PRI after the forfeiture of PRI’s corporate charter

on a debt owed to Shearson for stocks purchased by Shearson for PRI after PRI’s

forfeiture of its charter. Skrepnek, 889 S.W.2d at 580–82. PRI represented that it

would pay brokerage fees and margin interest that were not paid, resulting in a loss

to Shearson. Id. at 580. The court affirmed the judgment, finding that Skrepnek

was a participant in the post-forfeiture fraud. Id. at 580–82.

      Similarly, in Taylor, a lender brought an action against an automobile-

dealership corporation and its officer-director for the balance due on defaulted

retail automobile installment contracts. See Taylor, 316 S.W.3d at 865. The

lender alleged, and the trial court found, that the dealership breached its contractual

                                          27
obligations to the lender by failing to provide good title to the motor vehicles the

dealership sold to its customers under the contracts assigned to the lender and by

committing other similar acts.      Id.   The dealer’s wrongful acts breached its

contractual obligations to both the vehicle-purchaser and the lender and provided

the vehicle-purchaser with a defense against the lender as the holder of the retail

installment agreement.     Id.   The corporation’s privileges were subsequently

revoked for failure to file a required franchise tax report. Id. The lender sued the

corporation and the corporation’s officer-director, Taylor.            Taylor sought

application of the relation-back doctrine to protect himself from liability for the

money judgment entered against him in favor of the lender. Id. at 866–67. The

trial court held against him, and, refusing to apply the relation-back doctrine, the

appellate court affirmed the trial court’s judgment holding Taylor personally liable

for the dealership’s wrongful acts. Id.

      By contrast, Beesley v. Hydrocarbon Separation, Inc. falls into the line of

cases in which the relation-back doctrine does apply and corporate officers and

directors are not held liable for corporate obligations liquidated after forfeiture. In

Beesley, the Dallas Court of Appeals held that the promoter and officer of a

corporation that had forfeited its corporate charter could not be held personally

liable for the corporation’s breach of a consulting agreement entered into by the

corporation and its former owner before forfeiture. 358 S.W.3d 415, 423 (Tex.

                                          28
App.—Dallas 2012, no pet.). The court explicitly drew a distinction between the

type of debt incurred in Cain (a penalty for “costs of plugging oil wells” that

corporate officers were obligated by law to plug) and Taylor (damages for

“breaches of warranty and failure to provide good title to automobiles”), which

could not be “measured in a certain amount of money” at the time of contracting,

and the debts incurred in Rogers, 696 S.W.2d 674 (losses due to post-forfeiture

breach of purchase contract entered into long before forfeiture), Curry, 683 S.W.2d
109 (corporate debts arising from failure to adhere to leasing contract), and the

case at hand, Beesley itself (breach of employment agreement)—each of which

involved a contract that was entered in the regular course of business prior to

forfeiture and “specified both the amount and the date due, so that at the time of

contracting, a ‘debt’ was ‘created’ for purposes of section 171.255.” Id. at 423 n.7.

      The distinction drawn in Beesley between types of debt to which the

relation-back doctrine does and does not apply is informative here. It places the

judgment entered against 7677 squarely within the category of liquidated judgment

debts incurred by a corporation after forfeiture of the corporate charter as a result

of acts of wrongdoing by the corporation that occurred prior to forfeiture. The

relation-back doctrine does not apply to such acts of wrongdoing, and corporate

officers and directors with knowledge of the wrongdoing may be held personally

liable for the corporate debt under section 171.255.

                                         29
      I agree with the law as set out in Beesley and the other foregoing cases and

find in them the correct construction of section 171.255. Thus, I disagree with the

majority’s unique construction of section 171.255. Because the scenario in Cain

and its progeny—in which the relation-back doctrine was held not to apply—is

materially the same as here, I would apply the same reasoning as in Cain, and I

would hold that the debt in this case was incurred when the Hovels obtained a

legally enforceable liquidated money judgment against 7677 two years after

forfeiture of 7677’s corporate charter for its wrongful acts of negligent

misrepresentation and fraud against them prior to forfeiture. Therefore, I would

hold that Batzri, as 7677’s sole officer and director, is personally liable to the

Hovels for that debt—exactly contrary to the majority opinion, but consistent with

Schwab, Schlumberger, Curry, Cain, and their progeny.

D.    The Majority’s “Strict Construction” of Tax Code Section 171.255
      Under the “Rule of Lenity”

      The majority opinion contrasts sharply with the foregoing cases.         The

majority begins its analysis of Tax Code section 171.255 by characterizing Schwab

and Curry as support for a subtly but foundationally corrosive argument. It states,

“Although the statute imposes civil disability, Section 171.255 of the Tax Code

operates as a penal statute” and “[b]ecause Section 171.255 is a penal statute, we

must ‘strictly construe’ any ambiguity in favor of the party penalized by it.” Slip

Op. at 8 (citing Schwab and Curry) (emphasis added).

                                        30
      As shown above, neither Schwab nor Curry characterizes section 171.255 as

a penal, or criminal, statute as opposed to a civil one, or as an ambiguous statute to

be construed in favor of culpable defendants. Schwab says that “statutes . . .

making the directors or other officers of a corporation liable for its debts where

they are guilty of official delinquencies . . . though held to be remedial in some

instances, are also penal in nature, and it is generally held that they must be strictly

construed and cannot be extended beyond the clear import of their language.” 198
S.W.2d at 80–81 (emphasis added). There is no assertion that section 171.255 is a

criminal statute, no mention of any ambiguity in its language, and no mention that

it is to be strictly construed in favor of culpable defendants. To the contrary,

Schwab holds that the statute is “remedial . . . and also penal in nature” and that

such statutes “cannot be extended beyond the clear import of their language.” Id.

And Curry and Cain, as well as the other cases cited above, all carry forward the

rule of Schwab that the term “debt” in section 171.255 must be strictly construed as

a liquidated financial obligation of a corporation, merely adding the relation-back

doctrine to this definition so that the corporate debt relates back to the lawful

creation of the enforceable contractual obligation and corporate officers and

directors are not personally liable for any part of the lawfully incurred debt that is

liquidated after forfeiture.

                                          31
      Nevertheless, undeterred by the text of Schwab and Curry, the majority

states, “‘Strict construction,’ in the context of construing a penal statute, does not

mean that each individual term must be read narrowly. It means that, when a

statutory provision is unclear, the statute is read in its entirety in a way that

benefits the party facing the possibility of a penalty. . . .” and that “strict

construction of the entire statute, as opposed to strict construction of an isolated

word, might require that an individual word be read broadly to accomplish a

construction in favor of the party facing the penalty.”2         Slip Op. at 10–11

(emphasis added; citations omitted).      Schwab, however, requires that section

171.255 be strictly construed to protect the public, rather than the corporate

wrongdoer, stating, “The statute was meant to prevent wrongful acts of culpable

officers of a corporation, and was for the protection of the public.” 198 S.W.2d at

81–82.

      The majority bolsters its mischaracterization of Schwab and Curry with

additional misleading and incorrect citations, beginning with a 1964 case that

followed Schwab—Sheffield v. Nobles, 378 S.W.2d 391 (Tex. Civ. App.—Austin

1964, writ ref’d). The majority quotes from Sheffield the phrase that section

2
      “When I use a word,” Humpty Dumpty said…, “it means just what I choose it to
      mean—neither more nor less.”
      “The question is,” said Alice, “whether you can make words mean so many
      different things.”
LEWIS CARROLL, ALICE THROUGH THE LOOKING GLASS.

                                         32
171.255 is a statute that is “highly penal in nature and one which could produce

great hardship.” Slip Op. at 8. It does not quote the Sheffield court’s following

statement that it had found no indication “that the statute should not be enforced

according to its terms” and that “[t]he liability fixed by the statute under facts

present here is the liability of partners.” Sheffield, 378 S.W.2d at 392 (emphasis

added). In other words, it does not reference the Sheffield court’s recognition that

section 171.255 is to be construed strictly, in accordance with its plain,

unambiguous language so that it imposes on a defendant officer or director of a

corporation that has forfeited its charter the same civil liability that a partner has to

persons wronged by the partnership, just as the statute requires. See TEX. TAX

CODE ANN. § 171.255 (b), (c).           Sheffield does not support the majority’s

construction of section 171.255 as an ambiguous penal statute meant to be

construed broadly to protect culpable corporate officers.             Like Schwab, it

contradicts that construction.

      The majority reaches the real crux of its argument, however, only in a

footnote, citing a treatise of its choice instead of case law or the Texas Code

Construction Act, and stating, “This rule [of strict construction] functions much

like the rule of lenity.” Slip Op. at 8 n.7 (emphasis added). It explains: “The rule

of lenity is ‘sometimes cast as the idea that “[p]enal statutes must be construed

strictly” and sometimes as the idea that, if two rational readings are possible, the

                                           33
one with the less harsh treatment of the defendant prevails.’” Id. at 9 n.7 (quoting

ANTONIN SCALIA & BRYAN GARNER, READING LAW: THE INTERPRETATION                    OF

LEGAL TEXTS 296 (2012)). It then cites the same treatise for the proposition that

“[t]he rule ‘applies not only to crimes but also to civil penalties.’” Id. at 9 n.7

(quoting SCALIA & GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS

at 297).

      And for precedential support for these propositions in Texas law, it turns to a

concurrence in a Texas Court of Criminal Appeals case, Cuellar v. State, 70
S.W.3d 815 (Tex. Crim. App. 2002) (Cochran, J., concurring), in which the

concurring judge would have applied the rule of lenity to an ambiguous criminal

statute—not to an unambiguous civil statute. It is worth taking a look at Cuellar

for the actual treatment of the rule of lenity in Texas law.

      In Cuellar, Judge Cochran joined the majority opinion, but she also

concurred, adding that, in a case like Cuellar, in which a criminal statute is

ambiguous, “the Rule of Lenity requires this Court to adopt the less harsh

interpretation of penal statutes.” Id. at 821. She added, “Fortunately, Texas courts

rarely need resort to the Rule of Lenity to construe its penal provisions, due to the

drafting of the Texas Penal Code with clarity, precision, and straightforward, well-

defined language.”     Id. at 822.    Thus, it is clear that Judge Cochran never

conceived of the rule of lenity as applicable to a civil statute, or an unambiguous

                                          34
one, or one that must be strictly construed. Moreover, even as stated, her Cuellar

concurrence drew a sharp dissent from fellow Court of Criminal Appeals Judge

Michael Keasler. Judge Keasler disagreed that the rule of lenity is available in

Texas as a first resort to resolve an ambiguity in a criminal statute, much less to

construe an unambiguous civil liability statute. See id. at 837–38 (Keasler, J.,

dissenting). After observing that Judge Cochran had cited “an 1886 Texas case

and a 1955 United States Supreme Court case as authority,” Judge Keasler stated,

“[B]oth our Court and the United States Supreme Court have since greatly limited

the application of that rule.” Id. at 836–37. He pointed out how rare its use was in

the criminal law and that it had been superseded in that law in almost all cases by

the Code Construction Act. Id. at 837–38.3 Nevertheless, the majority forces this

3
      Judge Keasler pointed out:

             Today, our leading case on statutory construction [of the Penal
             Code] is Boykin v. State. In Boykin, we explained that if the
             meaning of the statutory text should have been plain to the
             legislators who voted on it, we should give effect to that meaning.
             But if the plain language is ambiguous or leads to an absurd result,
             we should then consider extratextual factors. The extratextual
             factors include those listed in the Code Construction Act and
             mentioned above. No mention is made in Boykin of the rule of
             lenity. A year after we handed down Boykin, we analyzed a statute’s
             meaning by following the method outlined in Boykin, specifically
             rejecting the dissent’s reliance on the rule of lenity. That does not
             mean that the rule of lenity no longer exists in Texas. But it should
             not be used until all other avenues have been exhausted and a
             statute’s meaning remains ambiguous.

Cuellar v. State, 70 S.W.3d 815, 837–38 (Tex. Crim. App. 2002) (Keasler, J., dissenting).

                                           35
rule of construction, as it understands it, upon the Tax Code as a rule of first resort

for construing unambiguous civil liability statutes, thus undermining the substantial

body of Texas precedent construing section 171.255 consistently over the last

seventy years.

E.    The Majority’s Analysis of the Case Law Construing Section 171.255
      and the Effect of the Enactment and Repeal of the Statutory Definition
      of “Debt”

      Two crucial errors drive the majority’s application to this case of the rule of

lenity, miscalled “strict construction.”

      First, recognizing that section 171.255 has been consistently “strictly

construed,” in accordance with the rule in Schwab, it purports to follow that rule,

but, instead of following the plain language of section 171.255 and Schwab and the

other cases construing and applying the requirements of the rule of strict

construction—which would lead it to the opposite result from the one it believes

warranted in this case—it redefines “strict construction” to mean its exact opposite,

“the rule of lenity.” It then construes section 171.255—an unambiguous civil

statute—as an ambiguous criminal statute to which it claims the rule of lenity

applies as a rule of construction of the first resort. And, even though the Texas

courts have consistently held that the rule of strict construction requires a narrow

definition of the terms of section 171.255, the majority holds that the rule (being

really the rule of lenity) requires extremely broad construction.          Finally, it

                                           36
maintains that the Texas courts have actually construed section 171.255 as the

majority currently does except when they have gotten pulled off track by the

statutory definition of “debt” in Tax Code chapter 171, which is now repealed and

therefore inapplicable.

      Second, because the proper construction of section 171.255 turns on when

the “debt of the corporation [was] created or incurred,” TEX. TAX CODE ANN.

§ 171.255(a), the majority not only has to redefine these terms broadly, especially

the term “debt” in section 171.255, to conform to its conception of the

requirements of the rule of lenity, but it also has to reconstruct the rationale and

application of the relation-back doctrine. It does this in two ways. It declares that

the creation of a “debt” relates back to the wrongful acts of culpable officers prior

to forfeiture so that they are protected from liability for those acts under section

171.255. It then declares that the case law has interpreted the terms of section

171.255 and the relation-back doctrine in accordance with the rule of lenity, as the

majority itself does, except from the period from 1987, when the legislature

arbitrarily introduced a new definition of the term “debt” into the case law—one

requiring that the term be construed narrowly rather than broadly in favor of

defendants in accordance with the rule of lenity—until 2008, when, just as

arbitrarily, the legislature withdrew the definition, eradicating it and leaving the

                                         37
courts—namely this one—free to reconstruct the definition of the terms of the

statute at will and thus to restore the rule of lenity.

       The majority’s argument is analyzed below.

       1.     The three stages of construction of section 171.255

       The majority divides the historical development of the construction of

section 171.255 into three sections. The first it calls the “pre-1987 era,” i.e., the

period before the legislature incorporated a statutory definition of “debt” into Tax

Code Chapter 171. It describes this period as one in which “debts were considered

created or incurred at the time the relevant contractual obligations were incurred”

and unliquidated debts “were permitted to relate back to the contractual

obligations.” Slip Op. at 12. At that time, the majority opines, “strict construction,

in the sense of achieving a narrow application of a statute as a whole was first

applied in a forfeiture case in Schwab.” Id. at 13. “Strict construction,” so

defined, the majority states, “resulted in the officers of the corporation not having

personal liability for the entity’s debts, consistent with the previously announced

view that ‘before any one should be punished, either in a criminal or a civil action,

. . . the offense should be clearly defined’ and ‘doubt as to the intention of the

legislature should be resolved in favor of the defendant.’” Id. at 13–14. In support

of its argument, the majority cites an inapposite 1892 case, Gulf, C. & S.F. Ry. Co.

v. Dwyer, 19 S.W. 470 (Tex. 1892), on the construction of ambiguous statutes,

                                            38
which contains nothing that supports its construction of section 171.255, an

unambiguous statute.

      The majority’s reconstruction of the second stage of section 171.255

interpretation, “1987,” is equally unprecedented. The majority describes 1987 as

the year “when the Tax Code was amended to include a narrow definition of

‘debt,’ limiting it to a liquidated obligation.” Id. at 12. Prior to that, the majority

opines, the term “debt” in section 171.255(a) was ambiguous. Id. at 17. As

support, it cites another 1892 case and a 1938 case, both of which long predated

section 171.255 and neither of which supports its claim. See id. (citing Barber v.

City of E. Dallas, 18 S.W. 438, 439 (Tex. 1892) (construing term “debt” in

“common parlance” as including liability for damages resulting from tortious acts,

while observing that term “has been differently defined, owing to the subject-

matter of the statutes in which it has been used” and “ordinarily . . . imports a sum

of money arising upon a contract,” but may “include all obligations to pay money,

whether arising from contract or implied by law, as a compensation for damages”),

and Reconstruction Fin. Corp. v. Gossett, 111 S.W.2d 1066, 1073 (Tex. 1938)

(following Barber in declaring that term “debt” is used in courts of this state “in a

general, and not in a restricted, sense,” and “has been differently defined, owing to

the subject matter of the statutes in which it has been used,” ordinarily

“import[ing] a sum of money arising upon a contract,” but, in its more general

                                          39
sense, meaning “that which one person is bound to pay to or perform for

another”)).

      Notably, both of the pre-section 171.255 cases cited by the majority as

support for its broad reading of the term “debt” in section 171.255(a) are entirely

compatible with established law construing section 171.255 strictly as an

enforceable financial obligation for purposes of that section of the Tax Code, and

neither case is relevant to show any ambiguity in the definition of the terms of

section 171.255 or to meet any requirement that the term “debt” in that statute be

construed broadly. Nevertheless, the majority opines, “By adding the narrow

statutory definition, the term was no longer ambiguous or subject to broad

interpretation by the courts.” Slip Op. at 18.

      The third period the majority views as pivotal, “post-2008,” is characterized

by the majority—again without precedent—as a time in which, after repeal of the

statutory definition of “debt” in Tax Code Chapter 171, the “basis for rejecting the

‘relation-back’ doctrine is removed,” and, once again, “the pre-1987 view of this

statute, which focused on broadly construing ‘created’ and ‘incurred’ and allowed

unliquidated debts to relate back to the contractual obligations from which they

arose, controls.” Id. at 21, 12. At that time, the majority opines, “the ‘relation-

back’ doctrine reemerged to avoid individual liability for pre-forfeiture acts that

lead to post-forfeiture judgments.” Id. at 21.

                                          40
      2.     The effect of repeal of the statutory definition of “debt”

      The majority’s reconstructed three-stage history of the construction of

section 171.255 turns not only upon the reinterpretation of the term “strict

construction” as “the rule of lenity” but also upon the enactment of the statutory

definition of “debt” and its repeal as marking a sharp turn in the proper analysis of

the statute. To reach this conclusion, however, the majority must not only

reconstruct the case law, as set out below, but it must also conclude “that the

repealed statutory definition is not only no longer binding but, at this point, has

become immaterial to our analysis of Section 171.255.” Slip Op. at 25. It supports

this claim by again picking a canon of construction of its choice from the treatise

Reading Law by Scalia and Garner, namely a rule which states, “‘When a statute is

repealed, it falls irretrievably into oblivion,’ and has no effect.”    Id. (quoting

SCALIA & GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS at 334).

“As a result,” the majority opines, “we are not constrained by the narrow definition

of a ‘debt’ as a liquidated sum certain. Instead, we look to the other pre- and post-

repeal cases to analyze when 7677’s debt was created or incurred.” Id. at 25–26.

      The Texas Supreme Court—whose instructions the majority essentially

ignores—has, however, never held that whenever any statute, much less a general

statutory definition applicable to many diverse statutes, has been repealed it “falls

irretrievably into oblivion.” Instead, Texas law holds that when a statute has been

                                         41
re-codified and text omitted, with no clear statement by the Legislature that a

substantive change is intended, and with no replacement by a clearly conflicting

statement of law, the courts must “diligently attempt to ascertain legislative intent

and shall consider at all times the old law, the evil, and the remedy.” Energy Serv.

Co. of Bowie, Inc. v. Superior Snubbing Servs., Inc., 236 S.W.3d 190, 194 (Tex.

2007) (quoting TEX. GOV’T CODE ANN. § 312.005 (West 2013)). Furthermore,

“[a]bsent any identifiable reason for a substantive change to have been made in the

statutory provision, or any extra-textual indication that one was intended, or any

resulting change in industry practice, . . . the most reasonable construction of [the

statute] is the same as its pre-[textual-change] predecessors.”           Id. at 195

(construing Texas Labor Code section 417.004). Such is the case here, and the

instruction of the supreme court on construing a statute in these circumstances is

exactly the opposite of the instruction the majority draws from the Scalia and

Garner treatise and follows.

      The statutory definition of the term “debt” in Tax Code Chapter 171 was

repealed in 2008 during a recodification of the chapter. The amendments had

nothing to do with section 171.255, which provides for the liability of officers of a

corporation that has forfeited its charter for the corporation’s debt. Instead, as the

majority itself acknowledges, it was “part of a series of amendments designed to

fund Texas schools by adopting new methods to calculate businesses’ tax bills.”

                                         42
Slip Op. at 22 n.15 (citing Senate Research Center, Bill Analysis, Tex. H.B. 3, 79th

Leg., 3d C.S. (2006)). The amendments to Chapter 171 were not intended to

change the narrow definition of “debt” historically applied in section 171.255, a

statute making directors and officers liable for corporate debts; they were intended

to permit courts to apply a broader definition when calculating businesses’ tax

bills. The definition of “debt” formerly applied to all of Chapter 171 did not need

to be replaced for purposes of construing section 171.255 because the definitions

of the terms “debt,” “created,” and “incurred” were all well established as strictly

construed with respect to section 171.255 and its predecessor long before the

chapter’s statutory definition of “debt” was enacted in 1987. The legislative history

of the amendments did not indicate that any substantive change was intended with

respect to the definition of “debt” for section 171.255 either when it was added or

when it was repealed. Instead, it made clear that the amendments were intended

for another purpose entirely.

      The Texas Supreme Court has instructed that, “[a]bsent any identifiable

reason for a substantive change to have been made in the statutory provision, . . .

the most reasonable construction of [the statutory term] is the same as its pre-

[amendment] predecessors.” See Energy Serv. Co., 236 S.W.3d at 195. The

majority, however, disregards the readily “identifiable reasons” for repeal of the

use of the narrow definition of debt applicable to section 171.255 for the entirety of

                                         43
chapter 171—reasons which have nothing to do with changing the definition of

“debt” for purposes of section 171.255. And it errs in concluding that it has license

to rely on Scalia and Garner’s Reading Law to redefine the term “debt” in section

171.255(a) in accordance with its own best lights, deeming the statutory definition

to have fallen “irretrievably into oblivion.” Slip Op. at 25. It should have adopted

the historic construction of the term.

      3.     The majority’s application of the rule of “strict construction” pre-
             1987, 1987–2008, and post-2008

      For the majority, if not for previous courts constrained by rule and

precedent, the construction of section 171.255 changed dramatically from the time

of Curry, when Schwab’s rule of lenity was incorporated into the relation-back

doctrine, in 1987, when the narrow statutory definition of “debt” was enacted and

the rule of lenity, with its broad interpretation of the terms of section 171.255, was

pushed aside; and it changed dramatically again in 2008, when the narrow statutory

definition of “debt” was repealed and fell “irretrievably into oblivion,” permitting

the restoration of the rule of lenity as the rule of construction of section 171.255.

      The majority leads off its analysis of the pre-1987 construction of section

171.255 with Schwab, stating, “The rule of strict construction, in the sense of

achieving a narrow application of a statute as a whole was first applied in a

forfeiture case in Schwab.” Slip Op. at 13. As shown above, this is incorrect. The

majority then portrays Schwab as carrying forward under the rubric of “strict

                                          44
construction”—by which it really means “the rule of lenity”—the rule of

construction of ambiguous criminal statutes from the 1892 Dwyer case, stating that

“‘before any one should be punished, either in a criminal or a civil action, . . . the

offense should be clearly defined’ and ‘doubt as to the intention of the legislature

should be resolved in favor of the defendant.’” Slip Op. at 13–14 (quoting Dwyer,
19 S.W. at 471).

      The majority then compounds the distorting effect of its reconstruction of

the case law, characterizing the relation-back doctrine as set out in Curry as a

further example of the rule of lenity (called, again, “strict construction”), claiming

that, “‘[s]trictly construing’ Section 171.255, the [Curry] court held that the

corporate officers were not personally liable because ‘the obligations,

circumstances, conduct, or transactions that create[d] or incur[red] the debt in

question pre-existed the forfeiture,’ even though the debt was, at that point, still

unliquidated.” Slip Op. at 14 (quoting Curry, 683 S.W.2d at 112). What Curry

actually said was that the relation-back doctrine applied as “strictly construed and

limited by the facts of this case.” 683 S.W.2d at 112 (emphasis added). The facts

in Curry reflected that the debt on which the corporate defendant had been sued

was for “a sum of money . . . due Curry Auto” under a contract executed in the

regular course of business prior to forfeiture of the corporate charter, and “[n]o

argument [was] made that a sum of money [was] due Curry Auto under a new,

                                         45
different, separate, or independent agreement between the parties,” and thus, “[n]o

debt for which the corporate officers are liable is shown to have been ‘created or

incurred’ after the forfeiture.” Id. Thus, the majority’s claim that Curry applied

the rule of lenity and held that corporate officers are not liable for “unliquidated”

obligations of a corporation created prior to forfeiture of the corporate charter is

simply incorrect.

      Cain explains this, but the majority repudiates Cain, stating in a

footnote:

      We disagree with Cain v. State, 882 S.W.2d 515, 519 (Tex. App.—
      Austin 1994, no writ), which held that a strict construction of Section
      171.255 requires courts to adopt the strictest possible definition of
      each statutory term. Indeed, the definitions given for “create” and
      “incur” in Schwab v. Schlumberger Well Surveying Corp., 198 S.W.2d
79, 81 (Tex. 1946)—which are recited axiomatically in almost every
      Section 171.255 case—are remarkably broad.

Slip Op. at 11 n.8. Thus, it condemns Cain as being in opposition to Curry, which

it believes “is consistent with strict construction” as it sees it—namely consistent

with the rule of lenity. It then states, “Many intermediate appellate courts have

followed Curry.” Slip Op. at 15. Thus, while the bare statement that many courts

have followed Curry is correct, it is profoundly misleading because it is based on

an improper analysis of both the relation-back doctrine as propounded in Curry

and Cain and the rule of strict construction as propounded in Schwab.

                                         46
      The majority’s backwards understanding of the terms “strict construction”

and “debt” and of the relation-back doctrine colors all the case law it addresses.

As a result, the majority fails to discern the various types of debt distinguished by

the case law construing section 171.255. It conflates those cases, and it attributes

the holding in all of them to the rule of lenity under the rubric of “strict

construction” or to its temporary suspension by the legislative imposition of a

narrow definition of debt as a liquidated obligation between 1987 and 2008.

      The majority opines that Rogers and other section 171.255 cases that

followed Curry support its arguments construing section 171.255 in terms of the

rule of lenity. See Slip Op. at 15–16. Actually, however, in cases like Rogers and

McKinney, as in Curry, the courts’ decisions gave effect to the lawful intentions of

the parties to a preexisting contract, preserved rights that would otherwise have

been lost, or afforded a remedy to a creditor of the corporation when none would

otherwise exist; thus, in each of these cases, the relation-back doctrine as

traditionally understood applied.     See Cain, 882 S.W.2d at 518 (discussing

relation-back doctrine and citing these cases); McKinney, 734 S.W.2d at 174–75

(holding that payments due under lease agreement incurred in regular course of

business prior to forfeiture were created or incurred at time of execution of

agreement, not at time when payments came due, and were not recoverable from

corporate officers); Rogers, 696 S.W.2d at 674 (addressing losses due to post-

                                         47
forfeiture breach of purchase contract entered into long before forfeiture); Curry,
683 S.W.2d at 112.

      The majority cites Jonnet (which I have discussed above as explaining the

rationale for the relation-back doctrine) only twice—both times citing the dissent.

Slip Op. at 10–11, 18 (citing Jonnet, 877 S.W.2d at 537, 536 (Jones, J.,

dissenting)). And it claims Skrepnek (also discussed above) is consistent with its

“rule of lenity” interpretation of “strict construction” and the relation-back doctrine

and that it was decided on grounds that are “not an issue” in this case, without

citing the similarity of the facts in Skrepnek to those in this case or its holding that

corporate officers are liable for enforceable corporate obligations wrongfully

incurred after forfeiture of a corporate charter. Slip Op. at 23–24.

      The majority also cites, in support of its “rule of lenity” analysis, cases

decided after the Legislature repealed Chapter 171’s statutory definition of “debt”

in 2008. These cases include Beesley (likewise discussed above). But the majority

only says of Beesley, incorrectly, that “it does not address the issue we face” and

that the analysis in that case “is consistent with applying the ‘relation-back’

doctrine.” Slip Op. at 24–25.

      The majority also includes Rossman v. Bishop Colo. Retail Plaza, L.P., 455
S.W.3d 797 (Tex. App.—Dallas 2015, pet. denied), which it cites as support for

the proposition that, “[w]ith that repeal, the ‘relation-back’ doctrine reemerged to

                                          48
avoid individual liability for pre-forfeiture acts that lead to post-forfeiture

judgments,” although it points to no support for that claim in the Rossman opinion.

Slip Op. at 21–22. Rossman actually stated that the 2008 repeal of the statutory

definition of “debt” in Chapter 171 did not “impact the result” in the case, pointing

out that the statutory definition of “debt” was “very similar to the one [in Seay and

Rogers],” both pre-statutory cases. 455 S.W.3d at 804 (citing Seay, 677 S.W.2d at

23; Rogers, 696 S.W.2d at 676–77). The Rossman court then applied the relation-

back doctrine to preserve a corporate director from liability arising out of corporate

leases entered prior to forfeiture of the corporate charter. Id. (citing Curry, 683
S.W.2d at 112).

      The majority finds only one exception to the restoration of the rule of lenity

in construing section 171.255 following repeal of the statutory definition of debt in

Chapter 171 of the Tax Code in 2008: Taylor (discussed above). See 316 S.W.3d

at 867. The majority opines, correctly, that the Fourteenth Court of Appeals

“concluded that the Legislature must have intended to overrule the use of the

‘relation-back’ doctrine in these Section 171.255 cases when it enacted such a

narrow definition of a ‘debt.’” Slip Op. at 21 (citing Taylor, 316 S.W.3d at 865.)

But it further opines that the facts in Taylor (a 2010 case) occurred before the

repeal of the narrow statutory definition in Chapter 171 in 2008, and it brushes

aside the fact that the Taylor court used the narrow definition of debt in deciding

                                         49
this section 171.255 case two years after repeal of the statutory definition. Thus,

with Taylor’s definition of “debt” gone and the relation-back doctrine as it

understands it restored, the majority is free to opine that, “with the repeal of the

narrow definition that led to the Taylor result, courts have again concluded that a

judgment-debt is created or incurred when the conduct or contract occurs, even if,

at that point, the obligation remains unliquidated.” Slip Op. at 23 (emphasis

added).

      It is true that Taylor rejected the relation-back doctrine, but what it actually

did was to reject the application of the doctrine in that case to relieve a corporate

officer of liability for acts of wrong-doing that occurred prior to forfeiture but were

reduced to a money judgment after forfeiture. See 316 S.W.3d at 869 (concluding

that “the relation-back doctrine should not be applied in this case” and overruling

issue premised on its applicability).   Taylor is thus exactly in line with all those

courts that have strictly construed the term “debt” as used in section 171.255 to be

an enforceable liquidated obligation and that have used the relation-back doctrine

to save from liability for corporate debt those non-culpable corporate officers who,

acting within the scope of their duties, created or incurred an unliquidated but

legally enforceable obligation of the corporation prior to forfeiture of the corporate

charter, while rejecting the use of the relation-back doctrine to save corporate

                                          50
officers from personal liability for liquidated corporate obligations incurred after

forfeiture because of wrongful acts of the corporation prior to forfeiture.

      Finally, the majority cites, as support for its construction of section 171.255,

Willis v. BPMT, LLC, 471 S.W.3d 27 (Tex. App.—Houston [1st Dist.] 2015, no

pet.), a recent case from a panel of this Court, for “concluding that [the] debt on [a]

lease agreement need not be for [a] sum certain, thus rejecting [the] repealed,

narrow ‘debt’ definition in favor of [a] construction that favored [the] party facing

[the] penalty.” Slip Op. at 22. And it claims, “We are bound by these precedents

from this Court.” Id. at 10. Actually, while Willis’s reasoning is similar to that of

the majority in this case, and is, therefore, in my view, incorrect, its application of

the law nevertheless illustrates the appropriate application of the relation-back

doctrine, hence the continuing vitality of that doctrine since its development in

Curry.

      Willis involved an action to recover unpaid rent from a corporation under a

lease agreement entered in the ordinary course of business of the corporation well

before forfeiture of its charter. 471 S.W.3d at 27–28. Thus, in Willis, the debt due

on the lease was construed as a legally enforceable monetary obligation even if the

exact amount was not determined until after forfeiture, and the debt related back to

the date the lease was entered and could not be recovered from the corporation’s

officers and directors. See id.; cf. Curry, 683 S.W.2d at 112; see also Cain, 882
51
S.W.2d at 518–19 (construing Curry and its progeny). Thus, the panel correctly

held that the corporate debt related back to the date of the lease and could not be

recovered from the defendant officers and directors. Willis does nothing to support

the majority’s holding in this case that Batzri is not liable for the wrongful acts of

negligent misrepresentation and fraud committed by 7677 against the Hovels prior

to forfeiture of the corporate charter and reduced to a liquidated money judgment

after forfeiture.

       The majority, nevertheless, referring to the cases cited above and others,

states, “All of these cases demonstrate application of the rule of strict construction

[by which it actually means the rule of lenity] to protect a party facing a penalty

through a construction of Section 171.255 in that party’s favor.” Slip Op. at 22.

But this is not the case. Contrary to the majority’s claims, Texas courts have never

followed its conception of either the strict construction rule applicable to section

171.255 or the relation-back doctrine. And no other courts have held that all

repealed statutes fall irretrievably into oblivion and that they are free to redefine

the term “debt” in section 171.255 because the legislature repealed the statutory

definition for that term in Chapter 171 in connection with broadening the tax base

for businesses. Rather, the courts, almost without exception, have followed

Schwab, Curry, and Cain as they really are. And, under that law, this case falls

squarely within the scope of those cases in which the courts have held that the

                                         52
relation-back doctrine does not apply and section 171.255 does apply—namely,

those cases in which a tax, penalty, or money judgment is incurred by a

corporation after forfeiture of its corporate charter as a result of wrongful acts of

the corporation either before or after forfeiture.       Following its own lead, the

majority rejects this conclusion.

F.    The Result of the Majority’s Analysis of Section 171.255

      The majority’s reconstruction of the law interpreting section 171.255 leads it

to conclude that 7677’s debt to the Hovels “was created or incurred pre-forfeiture”

and that Batzri is not liable for it. Id. at 27. Nevertheless, despite all it has done to

justify its vision of the law, the majority still can find no support for its conclusion

among published cases. Therefore, it relies on an unpublished 1998 case with no

petition for review, Ballard v. Quinn, No. 14-97-01057-CV, 1998 WL 787558, at

*2 (Tex. App.—Houston [14th Dist.] Sept. 10, 1998, no pet.) (mem. op., not

designated for publication), as “persuasive” authority for its holding that Batzri is

not liable to the Hovels under section 171.255 for 7677’s judgment debt.

      Rather than review the majority’s recitation of Ballard, I merely note that—

in a footnote several pages before setting out the “similarities between the Hovels’

claim and the one pursued in Ballard”—the majority states, “We recognize, of

course, that Ballard lacks precedential value. But,” it continues, “as we explain,

there are numerous similarities between the Ballard case and this one, and we

                                           53
believe the analysis is persuasive.” Slip Op. at 19 n.13. Thus, the majority

effectively decides to disregard the clear statement in the Rules of Appellate

Procedure that “opinions issued prior to the 2003 amendment [to Rule 47,

governing publication of appellate opinions] . . . and affirmatively designated ‘do

not publish’ should be considered ‘unpublished’ cases lacking precedential value,”

and to assign “persuasive” value to Ballard as its ultimate authority for its holding

absolving Batzri from liability to the Hovels. See Slip Op. at 26–27; see also

“Notes and Comments” following TEX. R. APP. P. 47.2.

      Thus, disregarding Rule 47.2, the historically narrow construction of the

terms of section 171.255, the rule of law governing statutes repealed as part of

inapplicable amendments as expressed in Energy Services Co., the purpose of

section 171.255 as expressed in Schwab, and the historical development of the

“strict construction” rule set out in Schwab and of the relation-back doctrine set out

in Curry and explained in Cain, the majority finds Ballard controlling.             It

concludes,

      Applying the rule of strict construction and utilizing the Supreme
      Court’s definition of the terms “created” and “incurred” from Schwab,
      we conclude that the debt evidenced by the default judgment obtained
      by the Hovels against 7677 was created or incurred pre-forfeiture at
      the time that the parties established their contractual and other
      obligations and, as such, Batzri is not individually liable for the
      entity’s debt.

                                         54
Slip Op. at 27. Every part of this statement is legally unfounded. Nevertheless, the

majority takes its statement to its logical conclusion and then adds, “Finally, even

if we were to consider public policy, we would reject the Hovels’ contention that

this interpretation is misguided.”       Id. at 28. Rather, it claims, “public policy

supports broadly construing ‘created or incurred’” and, of course, “debt.” Slip Op.

at 28.

G.       The Consequences of Ignoring Reality

         I find the majority’s opinion and holding so divergent from the mainstream

of legal construction and precedent, so diametrically opposed to the purpose of the

statute and the public policy of this state as expressed in Schwab and reiterated in

its progeny, and so far from accurately presenting the law that I have nothing to

say in conclusion other than to summarize the departures of the majority opinion

from precedent and to note the consequences of this decision.

         First, the strict construction of “debt . . . created or incurred” in Schwab and

all subsequent section 171.255 cases, and the development of the relation-back

doctrine traceable to Curry and Cain have long enabled courts to draw the

distinctions necessary in a section 171.255 case to characterize the “debt” for

which a plaintiff seeks to hold an officer or director of a defunct corporation liable

as either wrongfully or lawfully “created” or “incurred.” They enable courts to

distinguish (1) enforceable financial obligations of a corporation created or

                                            55
incurred by corporate officers acting within the scope of their duties before

forfeiture of a corporate charter, for which corporate officers may not be held

personally liable under section 171.255 and the relation-back doctrine, even if the

obligations are not liquidated until after forfeiture and (2) enforceable liquidated

financial obligations of the corporation created or incurred after forfeiture of the

corporate charter as a result of wrongful acts of the corporation that occurred either

before or after forfeiture, for which section 171.255 makes culpable officers and

directors of the corporation personally liable.        Thus, they enable courts to

determine whether or not their application of the statute will “prevent wrongful

acts of culpable officers of a corporation . . . for the protection of the public and

particularly those dealing with the corporation.” See Schwab, 198 S.W.2d at 81–

82 (stating purpose of statute).

      Correctly construed in accordance with its purpose, section 171.255 transfers

liability for a liquidated obligation incurred by a corporation after forfeiture of its

charter as a result of wrongful acts of the corporation to the corporation’s officers

and directors with knowledge of the wrongful acts, but it does not transfer personal

liability to corporate officers and directors for liquidated obligations incurred after

forfeiture as a result of enforceable obligations of the corporation created by

corporate officers acting within the scope of their duties prior to forfeiture. See

TEX. TAX CODE ANN. § 171.255; Schwab, 198 S.W.2d at 81. Under that law,

                                          56
liability for the judgment debt incurred by 7677 in favor of the Hovels after

forfeiture of its charter for its acts of fraud and negligent misrepresentation prior to

forfeiture should be transferred to Batzri, 7677’s only officer and director.

      On the majority’s reading of section 171.255, however, if a corporation is

held liable in a money judgment incurred after forfeiture of its corporate charter for

its wrongful acts, the judgment cannot be enforced against the principals and

officers of the corporation because the debt was “created or incurred” when the

bad acts took place—prior to forfeiture. This is the exact opposite of the intent of

section 171.255, which is to prevent the principals of a corporation from using

forfeiture of a corporate charter to avoid liability for wrongful acts of the

corporation, as Batzri seeks to do here. See Cain, 882 S.W.2d at 519–20 (in which

defendant likewise “contend[ed] for a liberally expanded interpretation of the

words ‘debt’ and ‘create,’” which court rejected as incompatible with all prior case

law, starting with Schwab, and with purpose of statute). And it results in the

exactly opposite conclusion from established law.

      Second, the distinctions made by the case law through the application of the

“strict construction” rule of Schwab and the relation-back doctrine of Curry allow

courts to harmonize the subsections of section 171.255 to effectuate the purpose of

the statute.   Under partnership law, incorporated into subsection 171.255(b),

partners in a partnership are generally liable for the debts of the partnership. See

                                          57
TEX. TAX CODE ANN. § 171.255(b); U.S. Rest. Props., 104 S.W.3d at 293 (partners

are jointly and severally liable for debts of general partnership). Under corporate

law, corporate officers are protected by the corporate shield afforded by the

corporate charter from personal liability for debts of the corporation created or

incurred in the exercise of their duties, and are no longer protected once the shield

is forfeited. See TEX. TAX CODE ANN. § 171.255(a); Portlock, 852 S.W.2d at 582.

But a corporate officer may be held individually liable for the tortious conduct of a

corporation in which he knowingly participates or of which has knowledge. TEX.

TAX CODE ANN. § 171.255(a); Leyendecker & Assocs., 683 S.W.2d at 375. The

three subsections of section 171.255, read together and harmonized, as required by

Texas law, provide that officers and directors of a corporation that has forfeited its

charter may be held jointly and severally liable for the liquidated debts of the

corporation incurred after the corporate charter and corporate shield are forfeited,

but only insofar as they had knowledge of or participated in wrongful acts of the

corporation giving rise to the debt.

      The majority, however, ignores subsections 171.255(b) and (c), which

provide that only a director or officer of a corporation with culpable knowledge of

a corporate debt “created or incurred” after forfeiture may be held liable under

section 171.255 “in the same manner and to the same extent as if the director or

officer were a partner and the corporation were a partnership.” See TEX. TAX

                                         58
CODE ANN. § 171.255(b), (c). And it ignores the strict construction rule that

requires that the terms of section 171.255 be narrowly construed so that corporate

officers are held personally liable only for those debts of the corporation incurred

after forfeiture of the corporate charter as a result of wrongful acts of the

corporation of which they had knowledge. It simply writes subsections 171.255(b)

and (c) out of the statute in favor of applying the rule of lenity it has chosen as its

own rule of construction, just as it fails to harmonize the terms of the statute, in

violation of the genuinely applicable canon of construction requiring that all parts

of a statute be rendered meaningful by a court’s construction and application of it.

See TEX. GOV’T CODE ANN. § 311.021.

      The majority holds that corporate officers and directors may not be held

liable for wrongful acts of the corporation of which they have knowledge that were

committed prior to forfeiture because the “debt” was created when wrongful acts—

such as fraud or misrepresentation—occurred and not when an enforceable legal

obligation was incurred by the corporation after forfeiture as a result of those acts.

Thus, under the majority’s construction of section 171.255, a corporate officer

cannot be held personally liable for the fraud or misrepresentation after forfeiture

of the corporate charter, even though a partner would be personally liable for such

acts committed by a partnership and even though the purpose of the statute requires

that all terms and parts of the statute be given effect and harmonized.

                                          59
      Third, the majority substitutes an inapplicable and essentially obsolete canon

of construction of ambiguous criminal statutes—the rule of lenity—for the rule of

strict construction promulgated in Schwab for construing this unambiguous civil

statute, in contradistinction to all prior case law. And it declares that it is not

bound by any law in defining “debt” in section 171.255, contrary to Texas

Supreme Court instruction. These actions result in the substitution of an

unprecedented and extremely broad redefinition of the term “debt” in section

171.255 as including unliquidated potential obligations of a corporation rather than

the narrow definition of “debt” as an enforceable liquidated obligation of the

corporation used historically, and they undermine the rationale for the development

of the relation-back doctrine.

      In sum, the majority opinion deprives both this Court and any future court

that adopts its redefinition of the operative terms in section 171.255 of all the

precedential case law strictly construing a “debt” for purposes of section 171.255

as a legally enforceable obligation to pay money.        It deprives the Court of

precedential case law relying upon the relation-back doctrine to distinguish among

(1) debts lawfully created or incurred as enforceable obligations by a corporation

that subsequently forfeits its charter, as to which no personal liability may be

imposed on corporate officers and directors after forfeiture; (2) new debts incurred

or created after forfeiture by officers with knowledge of the post-forfeiture debts,

                                        60
for which the officers or directors may be held personally liable; and (3) judgment

debts or penalties incurred by a corporation for wrongful acts of the corporation

that occurred prior to forfeiture but were not reduced to a legally enforceable

obligation until after forfeiture, for which officers and directors with knowledge of

the acts can be held personally liable. It creates division between this Court and all

others. And, in so doing, it destroys the consistency and reliability of the law.

      The consequences of the majority’s ignoring legal reality are both perverse

and severe. The majority opinion, therefore, in my view, has the potential to do

much damage to established law.

                                          61
                                     Conclusion

      I conclude that the conditions of Texas Tax Code section 171.255 for finding

a corporate officer or director personally liable for the debts of a corporation that

has forfeited its corporate charter were met in this case. Therefore, I would reverse

the summary judgment of the trial court in favor of Batzri, and I would render the

judgment the trial court should have rendered on the Hovels’ summary judgment

motion, holding Batzri personally liable for the money judgment entered by the

trial court against 7677 in favor of the Hovels.

                                               Evelyn V. Keyes
                                               Justice

Panel consists of Justices Keyes, Higley, and Brown.

Keyes, J., dissenting.

                                          62