490 S.W.3d 132
Tex. App.2016Background
- The Hovels contracted with 7677 Real Property LLC to build a custom home and sued for breach of contract, DTPA violations, and related tort/statutory claims after defects and delay.
- While litigation was pending, 7677 forfeited its corporate privileges for failing to pay franchise taxes; during forfeiture the Hovels obtained a default judgment against 7677 for about $2,067,166.50.
- 7677 later revived its privileges. The Hovels sued the sole manager/member, Gal Batzri, under Tex. Tax Code § 171.255 to impose personal liability for debts "created or incurred" during forfeiture.
- The parties cross-moved for summary judgment; the trial court granted Batzri’s motion and denied the Hovels’. The Hovels appealed, arguing the judgment debt was created during forfeiture and thus Batzri is liable.
- The central legal question: when is a corporation’s "debt" for § 171.255 purposes "created or incurred" — (a) at the time underlying wrongful acts/contract breaches occurred (pre-forfeiture) or (b) when the obligation was liquidated by judgment during forfeiture?
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a judgment entered during forfeiture is a "debt ... created or incurred" for § 171.255 | Hovels: "Debt" arises only when liquidated (judgment date); thus judgment during forfeiture created the debt and Batzri is liable | Batzri: "Debt" is created/incurred when the events giving rise to the claim occurred (pre‑forfeiture), so the judgment merely liquidated a preexisting obligation and he is not liable | Court: Held "created or incurred" means debt arises when the operative events/contract occurred; pre‑forfeiture acts/contracts mean the post‑forfeiture judgment relates back, so no personal liability for Batzri |
Key Cases Cited
- Schwab v. Schlumberger Well Surveying Corp., 198 S.W.2d 79 (Tex. 1946) (defines "create" and "incur," treats statutory provision as penal in nature, and endorses strict construction)
- Curry Auto Leasing, Inc. v. Byrd, 683 S.W.2d 109 (Tex. App.—Dallas 1984) (applies relation‑back doctrine: unliquidated contractual obligations relate to contract execution date)
- Rogers v. Adler, 696 S.W.2d 674 (Tex. App.—Dallas 1985) (holds tort/contract claims tied to pre‑forfeiture contract relate back to pre‑forfeiture conduct)
- Cain v. State, 882 S.W.2d 515 (Tex. App.—Austin 1994) (discusses limits of relation‑back doctrine and narrow meaning of "debt" in certain contexts)
- Taylor v. First Cmty. Credit Union, 316 S.W.3d 863 (Tex. App.—Houston [14th Dist.] 2010) (rejected relation‑back in light of a then‑statutory narrow definition of "debt")
- Willis v. BPMT, LLC, 471 S.W.3d 27 (Tex. App.—Houston [1st Dist.] 2015) (post‑repeal of the narrow statutory definition, reads "created or incurred" broadly to favor party facing penalty)