An appellate court has upheld a $2 million default judgment obtained by an insurer against a foreign limited liability corporation after finding that service on the secretary of state was proper.
The Case
On April 25, 2016, Hudson Specialty Insurance Company filed a lawsuit against Pyote Well Service, LLC, alleging that it failed to pay for insurance coverage Hudson provided through a variety of policies. In its original petition, Hudson asserted that Pyote was “a foreign limited liability company that can be served by delivering a citation and a copy of this petition to its registered agent, H HWommack III, or its president or any vice-president, at 400 W. Illinois, Suite 950, Midland, Texas 79701.”
A citation was issued on April 26, 2016 and was delivered to a licensed process server on April 28, 2016. The return of service reflected that the process server attempted to serve the original petition at the location of the registered agent five times on four different days from May 2, 2016 to July 6, 2016, but that the registered agent was “not in” at the registered office.
On August 15, 2016, Hudson filed an amended petition seeking service on Pyote through constructive service on the secretary of state pursuant to Sections 5.251 and 5.253 of the Texas Business Organizations Code. Hudson requested that the secretary of state forward a copy of the process to the “Defendant's most recent address on file with the Secretary of State of Texas at 400 W. Illinois, Suite 950, Midland, Texas 79701.” Hudson did not add any new claims or damages in its amended petition but stated that service on the secretary of state was necessary because Pyote's registered agent, president, or vice president could not be found despite reasonable diligence.
A citation was issued on August 16, 2016 and was served on the secretary of state on September 13, 2016.
The secretary of state forwarded the citation and amended petition by certified mail to Pyote on September 20, 2016 and the return receipt, reflecting delivery, was received by the secretary of state on September 22, 2016.
Pyote never filed an answer.
Hudson moved for a default judgment on December 19, 2016.
On January 31, 2017, the trial court entered a default judgment against Pyote in the principal amount of $1,544,490, attorneys' fees of $463,347, appellate attorney's fees of $45,000, and interest and costs.
Pyote appealed.
In its first ground for appeal, it asserted that Hudson failed to make any attempt to serve Pyote with its amended petition before serving the secretary of state. Pyote argued that, under Section 17.044(a)(2) of the Texas Civil Practice and Remedies Code, Hudson had to make two attempts to serve the amended petition on Pyote's registered agent before attempting service on the secretary of state. Pyote contended that the attempted service of the original petition on the registered agent did not satisfy Section 17.044(a)(2).
Hudson responded that service was accomplished under Section 5.251(1)(B) of the Texas Business Organizations Code, which permits service on the secretary of state for a foreign filing entity that maintains a registered agent if the registered agent cannot with reasonable diligence be found at the registered office.
In its second ground for appeal, Pyote claimed that Hudson failed to follow Section 17.045(a) of the Texas Civil Practice and Remedies Code because Hudson did not provide the address of Pyote's “home or home office” in the process delivered to the secretary of state.
Hudson responded that Section 17.045(a) did not apply because service was accomplished in accordance with Section 5.251(1)(B) of the Texas Business Organizations Code.
The Appellate Court's Decision
The appellate court affirmed.
In its decision, the appellate court explained that Hudson attempted to serve Pyote with its original petition five different times over several weeks. The appellate court added that Hudson amended its original petition to plead the facts underlying constructive service on the secretary of state but that the original and amended petitions otherwise were “almost identical.”
Accordingly, the appellate court rejected Pyote's first ground for appeal.
Next, the appellate court rejected Pyote's second ground, reasoning that Section 5.251 was “an independent statute relating to service on a foreign entity separate and apart from Sections 17.044 and 17.045(a).”
Pyote, the appellate court observed, had to continuously maintain (1) a registered agent for service of process, and (2) a registered office. Given that Pyote's registered agent could not, with reasonable diligence, be found at its registered office, the secretary of state was an agent of Pyote for service of process, the appellate court added. It concluded that there was “no need to provide information on a 'home' or 'home office' because service was in accordance with Section 5.251.”
Accordingly, the appellate court concluded that Hudson satisfied the requirements under Section 5.251 for constructive service on the secretary of state; the certificate from the secretary of state conclusively established that process had been served; and the trial court had personal jurisdiction over Pyote.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].