State v. Highland Homes, Ltd.
417 S.W.3d 478
Tex. App.2012Background
- Underlying dispute: subcontractor payroll deductions by Highland for insurance coverage; parties disagreed on interpretation of the 2002 memo.
- 2002 memo stated Highland would deduct if subcontractors lacked specific liability insurance; interpretation split: Benny & Benny said Highland would obtain coverage and deduct; Highland said it would deduct to cover higher premiums even if subcontractor did not obtain coverage.
- 2006 Benny & Benny sued; discovery of deductions led to claims of breach of contract, fraud, misrepresentation, unjust enrichment, and statutes under various Texas laws.
- 2008 class action certified; 1,864 subcontractors identified; approx. $3.1 million deducted; settlement allocated $3.672 million to the class (roughly 115% of amounts deducted).
- Settlement administered by Rust Consulting; checks issued to class members with a 90-day void period and unclaimed funds earmarked for cy pres to The Nature Conservancy; State intervened opposing unclaimed-property disposition.
- Texas unclaimed-property law (Chapters 72–76; with Chapters 73 and 74 governing checks and escheat) controls the disposition; court later held the cy pres/unclaimed-property provisions violated the Property Code and ordered remand to strike those provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the unclaimed-property provisions valid under Texas law? | State argues provisions violate 74.309 private escheat prohibition. | Highland/Benny contend cy pres and 90-day checks serve legitimate settlement mechanics; not improper. | Unclaimed-property provisions violate the Act; private escheat prohibited. |
| Is the cy pres distribution permissible under Texas law for unclaimed funds? | State contends cy pres defeats statutory escheat requirements. | Settling parties argue cy pres is acceptable to disperse unclaimed funds. | Cy pres disposition cannot be used to bypass unclaimed property laws; provisions void. |
| What remedy should the court impose for the invalid provisions? | State seeks striking unclaimed-property provisions and remitting funds to Comptroller. | Remedy should preserve settlement terms while removing impermissible sections. | Reverse and remand to strike sections 28(g) and 32; hold funds for Comptroller and then remitted per Chapter 74. |
Key Cases Cited
- General Motors Corp. v. Bloyed, 916 S.W.2d 949 (Tex. 1996) (settlement fairness deference to trial court; Rule 42(e))
- State v. Snell, 950 S.W.2d 108 (Tex.App.--El Paso 1987) (private escheat prohibition and unclaimed property process)
- All Plaintiffs v. All Defendants, 645 F.3d 329 (5th Cir. 2011) ( Fifth Circuit: cy pres cannot override state unclaimed-property laws)
- Jefferson Lake Sulphur Co., 178 A.2d 329 (N.J. 1962) (escheat/public policy protecting unclaimed dividends)
- Screen Actors Guild, Inc. v. Cory, 154 Cal. Rptr. 77 (Cal.App. 1979) (private bylaw reversion of unclaimed residuals contrary to public policy)
- Marshall Field & Co. v. Illinois, 404 N.E.2d 368 (Ill.App.Ct. 1980) (private gift certificates and public policy against circumventing unclaimed-property laws)