Kao Holdings, L.P. D/B/A Sebring Apartments and William Kao v. Annie Lee Young

• Court: Court of Appeals of Texas
• Decided: November 21, 2006
• Docket: 14-05-00398-CV
• Status: Published

Opinion

Affirmed in Part, Reversed and Remanded in Part, and Majority and Dissenting Opinions filed November 21, 2006

Affirmed in Part, Reversed and Remanded in Part, and Majority and Dissenting Opinions filed November 21, 2006.

In The

Fourteenth Court of Appeals

_______________

NO. 14-05-00398-CV

KAO HOLDINGS, L.P., d/b/a SEBRING

APARTMENTS and WILLIAM KAO, Appellants

V.

ANNIE LEE YOUNG, Appellee

On Appeal from the 151st District Court

Harris County, Texas

Trial Court Cause No. 04-26236

D I S S E N T I N G   O P I N I O N

In this restricted appeal, error is apparent from the face of the record because the trial court rendered a $2.5 million default judgment against appellant William Kao, even though the petition on which the judgment was granted (1) did not name him as a defendant in the lawsuit, (2) did not assert any claims against him, (3) did not seek a judgment against him, (4) did not allege that he was a general partner of the limited partnership being sued, and (5) did not seek to hold him liable for the debts or obligations of the defendant limited partnership.  Under mandatory precedent from the Texas Supreme Court, the trial court erred in rendering a default judgment that was not based on the plaintiff=s live pleading. In reaching the opposite conclusion, this court bases today=s holding on section 17.022 of the Texas Civil Practice and Remedies Code,  article 6132b-3.05(c) of the Texas Revised Civil Statutes, and a case from a divided panel of another intermediate court of appeals.  Under their unambiguous language, these statutes are not triggered unless a partner is served with citation informing the partner that he has been sued, and these statutes do not authorize a judgment against a partner in his individual capacity in a case in which the partner has not been sued.  This court should reverse the default judgment as to William Kao.  Because it does not, I respectfully dissent.

Background

In the only petition ever filed in this case, plaintiff/appellee Annie Lee Young asserted a premises-liability claim based on alleged injuries she claims to have suffered from a fall, at an unspecified time, at the Sebring Apartments.  In the petition, Young sought various personal-injury damages from the following named defendants:

(1)       Kao Holding, L.P. doing business as Sebring Apartments (hereinafter AKao Holdings@), ^[1]

(2)       John Doe One (1) Unknown Apartment Management Company,

(3)       John Doe Two (2) Unknown Apartment Complex Owner,

(4)       John Doe Three (3) Unknown Apartment Complex Owner.

Young alleged that Kao Holdings and the three AJohn Does@ (hereinafter collectively the ADefendants@) were, at all material times, the owners of the premises where she allegedly fell and was injured.  Young alleged that she was an invitee at the time of the fall and that the Defendants= negligence proximately caused her personal injuries, which allegedly included a compression of the L1 vertebra and thoracic and lumbrosacral strain and sprain.  In her pleading, Young sought actual and exemplary damages against the Defendants.  Nowhere in the petition did Young specify the amount of damages that she sought, and nowhere did she allege that her damages were liquidated.  Nowhere in her petition did Young (1) name William Kao as a defendant in the lawsuit, (2) assert any claims against him, (3) seek a judgment against him, (4) allege that he was a general partner of the limited partnership being sued, or (5) seek to hold him liable for the debts or obligations of the defendant limited partnership.  The only time William Kao is mentioned in the petition is in the following sentence:

Defendant Kao Holding, L.P., a partnership based in Texas, may be served with process pursuant to Section 17.22 of the Texas Civil Practice and Remedies Code by serving William Kao, a partner of said partnership, at [address].

The only returns of service in our record reflect that a citation addressed to Sebring Apartments and a citation addressed to AKao Holding, L.P.@ were served on William Kao in person on November 30, 2004.  No citation addressed to William Kao was ever requested, issued, or served.  On appeal, Young Aconcedes that Appellant William Kao was never named or served in his individual capacity in Appellee=s lawsuit.@  In her motion for default judgment, Young told the trial court the following:

(1)       William Kao is a defendant in the case.

(2)       William Kao was properly served with process on November 30, 2004.

(3)       William Kao has not filed an answer and has not appeared.

(4)       The damages alleged in Young=s petition are liquidated and proved by a written instrument.

(5)       No hearing is necessary to establish the amount of Young=s damages.

Based on the foregoing, Young asked the trial court Ato enter a Default Judgment Granting [sic] the relief requested in Plaintiff=s Original Petition.@

The proposed default judgment Young submitted to the trial court, signed by both Young and her counsel, states the following:

(2)       William Kao was served with citation more that thirty days ago.

(3)       The return of service has been on file for more than ten days.

(4)       William Kao has not filed an answer.

(5)       Young is awarded judgment against William Kao and against all of the Defendants in the principal amount of $2.5 million for Apersonal injuries and related damages,@ plus postjudgment interest and court costs.

The trial court signed and dated the proposed default judgment without making any changes.  Although there is no indication in the record that the trial court held an evidentiary hearing on the default judgment or heard evidence as to the amount of Young=s damages, Young asserts on appeal that an evidentiary hearing was held and not reported. 

May a trial court render a no-answer default judgment against a person who is not a defendant in the case?

The trial court rendered a no-answer default judgment under Texas Rule of Civil Procedure 239.  See Tex. R. Civ. P. 239.  If the citation and proof of service have been on file for ten days exclusive of the day of filing and day of judgment, this rule allows a plaintiff to take a default judgment against a Adefendant@ who is required to answer but has not done so.  In a civil proceeding, a defendant is A[a] person sued.@  Black=s Law Dictionary 450 (8th ed. 2004).  Given that the only pleading in this case does not name William Kao as a defendant, assert a claim against him, or seek a judgment against him, William Kao has not been sued in this case and is not a Adefendant.@  See id.  Therefore, there is no authority under Rule 239 to render a no-answer default judgment against William Kao.  See Tex. R. Civ. P. 239.  This rule is consistent with a bedrock principle of Texas jurisprudenceCno court can grant relief against a person or entity that is not a party to the litigation.  See Werner v. Colwell, 909 S.W.2d 866, 869B70 (Tex. 1995) (holding trial court erred in granting judgment against a person as trustee of an ERISA plan because that person was never named as a party defendant); see also In re TXU Elec. Co., 67 S.W.3d 130, 143 (Tex. 2001) (Baker, J., concurring) (stating that there is a bedrock principle in Texas jurisprudence that no court can grant relief against a person or entity that is not a party to the litigation). 

To support its analysis, the majority relies on Texas Rule of Civil Procedure 124, entitled ANo Judgment Without Service.@^[2]  See ante at p. 3.  The majority notes that, although this rule generally requires a person to be named as a defendant and served with process before a judgment may be rendered against the person, this rule does not apply Awhere otherwise expressly provided by law.@ Tex. R. Civ. P. 124; see ante at p. 3.  The majority indicates that the two statutes upon which it relies Aexpressly@ provide that judgment may be rendered against a general partner of a partnership even though that partner has not been named as a defendant and served with process.  See ante at p. 3 (citing Tex. Civ. Prac. & Rem. Code '17.022 and Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c)).  However, as explained more fully below, neither of these statutes expressly states that judgment may be rendered against a general partner of a partnership even though that partner has not been named as a defendant and served with process.  See Tex. Civ. Prac. & Rem. Code '17.022 (Vernon 1997); Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c) (Vernon Supp 2006).

Error is apparent on the face of this record because, although the petition does not make William Kao a party to this litigation, the trial court rendered a $2.5 million default judgment against him.^[3] 

May a trial court grant a default judgment based on a claim that has not been pleaded?

Since at least 1858, it has been a bedrock principle of Texas law that a trial court errs if it grants a default judgment on a claim that is not contained in the pleadings.  See Stoner v. Thompson, 578 S.W.2d 679, 683B84 (Tex. 1979).  For Young=s pleading to sufficiently state a claim against William Kao, the four corners of the petition itself must enable a court to ascertain with reasonable certainty the elements of her claim against William Kao and the relief sought, with sufficient information upon which to base a judgment.  See id.  Though mere formalities, minor defects, and technical insufficiencies will not invalidate a default judgment, the petition on which it was based must state a claim and give Afair notice@ to the opposing party of the relief sought.  See id.  After examining the four corners of the petition, there is no hint of any claim, judgment, or relief sought by Young against William Kao.  Nothing in the petition provides fair noticeCindeed, any noticeCthat Young is asserting a claim or seeking a judgment against William Kao. Though Young included a general prayer in her petition, the Texas Supreme Court has held that a general prayer cannot be used as a basis to affirm a default judgment awarding relief on an unpleaded claim.  See id.  Even liberally construing all of the petition=s allegations in Young=s favor and deeming them to be true, there is nothing in the petition that would support a judgment against William Kao.  Therefore, under longstanding precedent, the trial court erred in granting a default judgment against William Kao based on a claim not contained in Young=s petition.  See id. 

The majority acknowledges that Young=s petition does not assert a claim against William Kao individually, but the majority does not address the requirement that the default judgment be based on the claims asserted in the petition.  Young=s motion for default judgment requested a ADefault Judgment [g]ranting the relief requested in [Young=s] Original Petition.@  But the default judgment Young submitted and the trial court signed went far beyond the relief requested in the petition and granted a multi-million dollar judgment against a person who was not a defendant.  Under well-established Texas law, the trial court erred in rendering a default judgment on a claim that was not contained in any pleading.  See id. (holding that trial court erred in granting a default judgment awarding $50,000 in actual damages to a party whose pleading did not allege monetary damage or seek a money judgment).  On this basis alone, the judgment should be reversed.

Does section 17.022 of the Texas Civil Practice and Remedies Code allow a plaintiff to obtain a default judgment against a nonparty on an unpleaded claim?

This court states that William Kao is a general partner in Kao Holdings and that being served as an agent for service of process with citation addressed to the limited partnership (Kao Holdings) in and of itself makes William Kao a defendant in his individual capacity.  There are several problems with this analysis.  First, the petition states only that Kao Holdings may be served by serving William Kao, who is allegedly Aa partner of said partnership.@  The petition never alleges that William Kao is a general partner.^[4]

Even presuming that William Kao were the general partner of Kao Holdings, thus making him a proper agent for service of process for Kao Holdings, there is still the issue of how service on William Kao of process addressed to Kao Holdings and a petition that asserts no claims against William Kao can transform William Kao into a party to the lawsuit.  The majority cites section 17.022 of the Texas Civil Practice and Remedies Code, entitled AService on Partnership,@ to support this notion that the act of serving process can somehow amend the petition that is being served.  See Tex. Civ. Prac. & Rem. Code '17.022.

Section 17.022 is in a subchapter entitled ACitation Generally@ and states in its entirety as follows:

' 17.022. Service on Partnership

Citation served on one member of a partnership authorizes a judgment against the partnership and the partner actually served.

Tex. Civ. Prac. & Rem. Code '17.022.         

As a threshold matter, this court should examine the text of the statute and determine if it is ambiguous.  See In re Mo. Pac. Ry. Co., 998 S.W.2d 212, 217 (Tex. 1999).  If the meaning of the statutory language is unambiguous, the court should adopt the construction supported by the plain meaning of the provision=s words.  St. Luke=s Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997).  A Acitation@ is directed to the defendant, telling the defendant that it has been sued and commanding the defendant to appear and answer the opposing party=s claims.  Texas Natural Res. Conservation Comm=n v. Sierra Club, 70 S.W.3d 809, 813 (Tex. 2002).  AService of citation@ is a term of art that describes the formal process by which a party is informed that it has been sued.  Id.  Section 17.022 does not even come into play unless there has been service of citation on a partner in a partnership.  See Tex. Civ. Prac. & Rem. Code '17.022.  For there to have been service of citation on a partner, there must have been service of a citation addressed to a partner that informs the partner that he has been sued and commands the partner to appear and answer the opposing party=s claims.  Texas Natural Res. Conservation Comm=n, 70 S.W.3d at 813.  Section 17.022 states that if a partner is served with citation informing the partner that he has been sued, then service of citation is not also necessary as to the partnership.  The language in section 17.022 was first enacted by the Texas Legislature in 1925.  See Vernon=s Ann. Civ. Stat. of 1925 art. 2033.  At that time partnerships were not separate entities and could not be sued under Texas law; the only way that partnership assets could be reached was by suing the individual partners and serving at least one of them with citation.  See, e.g., Glasscock v. Price, 47 S.W. 965, 966 (Tex. 1898) (stating that at common law a partnership is not a legal entity and cannot sue or be sued and noting that A[i]n some states statutes have been enacted authorizing suits to be brought by or against partnerships in their firm names, thus recognizing them as persons, in a qualified sense, but our statutes do not go so far.  They merely provide that, when the partners are sued, service upon one of them will authorize a judgment against the one served and against the firm . . .@); McFaddin, Wiess & Kyle Land Co. v. Tex. Rice Land Co., 253 S.W. 916, 926 (Tex. Civ. App.CBeaumont 1923) (stating that A[i]t is well settled in Texas that a partnership is not a separate entity@ and that A[h]aving no legal existence, a partnership, as such, can neither sue nor be sued, nor can a judgment be rendered for or against it . . . the property of the firm may be reached by suit against all partners and service upon at least one@), aff=d, Tex. Rice Land Co. v. McFaddin, Wiess & Kyle Land Co., 256 S.W. 888 (Tex. Comm=n. App. 1924, judgm=t adopted).

Under its unambiguous language, (1) section 17.022 is not triggered unless a partner is served with citation informing the partner that he has been sued and (2) section 17.022 does not authorize a court to render judgment against a partner in his individual capacity in a case in which the partner has not been sued.  Our record shows that William Kao was not sued or served with citation but that Kao Holdings was sued and served with citation.  Because there has been no service of citation on any alleged partner of Kao Holdings, section 17.022, under its unambiguous language, does not apply to this case.

Furthermore, even if this statute were found to be ambiguous, in a proper analysis this court would then consider the object sought to be attained, the circumstances under which the statute was enacted, the legislative history, former statutory provisions, and the consequences of a particular construction.  See In re Sullivan, 157 S.W.3d 911, 916 (Tex. App.CHouston [14th Dist.] 2005, orig. proceeding [mand. denied]).  The object sought to be attained by this statute is to show how service of process works in the situation in which a person seeks a judgment binding on partnership assets but cannot sue the partnership because it is not recognized as a separate legal entity, which were the circumstances under which the statute was enacted.  The statute shows that, by suing one or more of the partners and serving at least one partner with a citation addressed to the partner, the judgment will bind the partnership assets.  Research reveals no available legislative history for this statute, but viewing the statute in the proper context, it is clear that the majority=s construction of it yields consequences the drafters could not have intended. 

Today=s holding allows a trial court to render a default judgment based on a claim not pleaded in the petition and without notice to the partner served as agent for service of process for the partnership that he has been sued and that a personal judgment may be entered against him.  Therefore, the majority=s construction undermines important and longstanding Texas policies, and the other construction supports them.  See Whitney v. L&L Realty Corp., 500 S.W.2d 94, 97 (Tex. 1973) (stating that Texas has strong and longstanding policies requiring default judgments to be based on (1) claims particularly pleaded in the petition, (2) a showing of service of process, and (3) notice to the defendant that a personal judgment may be entered against him).  Therefore, even if this statute were ambiguous, the relevant factors would militate against adopting the majority=s construction.

Does article 6132b-3.05(c) of the Texas Revised Civil Statutes allow a plaintiff to obtain a default judgment against a nonparty on an unpleaded claim?

The majority also relies on article 6132b-3.05(c) of the Texas Revised Civil Statutes. See Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c).  This statute states in its entirety as follows:

A judgment against a partnership is not by itself a judgment against a partner, but a judgment may be entered against a partner who has been served with process in a suit against the partnership.

Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c).  If the meaning of the statutory language is unambiguous, this court should adopt the construction supported by the plain meaning of the provision=s words.  Agbor,  952 S.W.2d at 505.  Under the unambiguous language of this statute, the partner must have been served with process informing the partner that he has been sued in a case in which the partnership also has been sued.  See Texas Natural Res. Conservation Comm=n, 70 S.W.3d at 813.  A United States District Court in Texas has construed this statute as requiring a partner to be Aindividually served with process in order to be bound in his individual capacity@.  RTC v. Bonner, 848 F.Supp. 96, 100 (S.D. Tex. 1994) (basing court=s conclusion that an agreement tolling limitations as to claims against a partnership did not toll claims against the individual partners of that partnership in part on art. 6132b-3.05(c)).

The phrase Aa partner who has been served with process in a suit against the partnership@ means a partner who has been served with process informing the partner that he has been sued in a case in which the partnership also has been sued.  See Texas Natural Res. Conservation Comm=n, 70 S.W.3d at 813.  The majority asserts that this construction ignores the language of section 3.05(c).  See ante at p. 5.  On the contrary, this construction gives meaning to Section 3.05(c)=s unambiguous language. 

The majority also states that construing section 17.022 and section 3.05(c) so that they mean something that would be true even if these sections were not enacted would render these statutes unnecessary and surplusage.  Courts generally prefer, if possible, to refrain from treating any statutory language as surplusage.  See, e.g., Continental Cas. Ins. Co. v. Functional Res. Assocs., 19 S.W.3d 393, 402 (Tex. 2000).  However, legislatures often enact statutes to codify already existing common-law rules or constitutional mandates.  Though courts generally seek to construe statutes or parts thereof so that they will not be redundant of other statutes, this goal is not always attainable.  For example, this approach may not be possible in the construction of a uniform statute regarding partnerships that may restate partnership principles that already are generally applicable under other statutes, rules, or case law.^[5]  In In re City of Georgetown, the Texas Supreme Court rejected an argument that its construction rendered statutory language surplusage and construed a statute to say the same thing three times.  See 53 S.W.3d 328, 335B36 (Tex. 2001).  The Texas Supreme Court concluded that the Legislature repeated itself out of an abundance of caution and for emphasis.  See id.  Furthermore, if the majority is correct that a statute should not be construed to mean something that already was true under some other statute or rule of law, then the court=s construction of section 3.05(c) also violates this principle because it construes this section to mean what already was true under section 17.022 of the Civil Practice and Remedies Code.

In addition, even if section 3.05(c) were found to be ambiguous, the proper course to determine its meaning would be to consider the object sought to be attained, the circumstances under which the statute was enacted, the legislative history, former statutory provisions, and the consequences of a particular construction.  See In re Sullivan, 157 S.W.3d at 917.  The object sought to be attained by this statute appears to be stating that a judgment must be taken against a partner individually to enforce a partnership obligation against that partner=s individual assets.  The statute shows that, by suing one or more of the partners and serving at least one partner with a citation addressed to the partner, the judgment will bind the individual assets of the partners served with process.  The only legislative history from this statute that bears on the issue at hand is from the bar committee that drafted section 3.05(c) and the entire Texas Revised Partnership Act.  This committee stated that A[s]ubsection (c) provides that a judgment against the partnership is not, standing alone, a judgment against any of the partners, but that a judgment may be entered against any partner who has been served with process in the same suit.@  Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c) & cmt. (emphasis added).  By using Aany@ and indicating there may be more than one, the bar committee apparently did not consider service of process on the partner to mean service with process directed to the partnership.  If the process in question were process directed to the partnership, then it would not be served on more than one partner.  The majority=s construction of this statute permits a trial court to render a default judgment based on a claim not pleaded in the petition and without notice to the partner served as agent for service of process for the partnership that (1) he has been sued and (2) a personal judgment may be rendered against him.  Therefore, the majority=s construction violates longtime Texas policies, and the other construction supports them.  See Whitney, 500 S.W.2d at 97 (stating that Texas has strong and longstanding policies requiring default judgments to be based on (1) claims particularly pleaded in the petition, (2) a showing of service of process, and (3) notice to the defendant that a personal judgment may be entered against him).  Even if this statute were ambiguous, evaluation of the relevant factors would weigh against the majority=s construction.

Is this court free to decide on its own the proper construction of the statutes at issue?

The majority concludes that this court is bound by the decision of a divided panel of the First Court of Appeals in Fincher and that this court has no legal authority or other proper basis to rule differently from the Fincher court under a principle stated in Texas Department of Protective and Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 176 (Tex. 2004).  See ante at pp. 5B6; Tex. Dep=t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 176 (Tex. 2004); Fincher v. B&D Air Cond. & Heating Co., 816 S.W.2d 509, 512B14 (Tex. App.CHouston [1st Dist.] 1991, writ denied).  Under this principle, A[i]f an ambiguous statute that has been interpreted by a court of last resort or given a longstanding construction by a proper administrative officer is re‑enacted without substantial change, the Legislature is presumed to have been familiar with that interpretation and to have adopted it.@ Mega Child Care, Inc., 145 S.W.3d at 176.  This principle applies to ambiguous statutes and opinions from courts of last resort.  Id.  Because the majority concludes that the statutes in question are unambiguous, the majority errs in applying this principle.  See id.  Likewise, because the First Court of Appeals is not a court of last resort, the majority errs in concluding that, by declining to exercise discretionary review of that court=s decision in Fincher, the Texas Supreme Court has interpreted section 17.022 and section 3.05(c).  See supra at pp. 5B6.  The Texas Supreme Court=s denial of the application for a writ of error in Fincher means that the Texas Supreme Court was not satisfied that the Fincher opinion declared the law correctly in all respects but was of the opinion that the application for writ of error presented no error of law which required reversal or which was of such importance to Texas jurisprudence as to require correction.  See In re T.L.C., 948 S.W.2d 41, 45 n.3. (Tex. App. Houston [14th Dist.] 1997, no pet.); see also Tex. R. App. P. 56.1 (b)(1).  We do not know what issues were presented in the application for writ of error in Fincher, and even if the petitioner challenged the intermediate court=s construction of section 17.022 and section 3.05(c), the Texas Supreme Court may have disagreed with this construction but determined that the error was not sufficiently important to Texas jurisprudence to require correction.  See id.  For this reason, the Texas Supreme Court=s denial of review in Fincher does not give any indication of the Texas Supreme Court=s view of the merits of the issues decided by the First Court of Appeals in Fincher and does not convert Fincher into a Texas Supreme Court precedent.  See Loram Maintenance of Way, Inc. v. Ianni, CS.W.3dC,C, No. 04-0666, 2006 WL 1791692, at *2 (Tex. June 30, 2006) (holding that Texas Supreme Court=s declining to review a case is not evidence that the high court agrees with the opinion of the court of appeals and gives no indication of the high court=s views on the issues decided therein); Matthews Const. Co., Inc. v. Rosen, 796 S.W.2d 692, 694 n.2 (Tex. 1990) (same). 

In sum, the statutes in question are not ambiguous, and they have never been interpreted or construed by a court of last resort or given longstanding construction by a proper administrative officer.  Therefore, the principle upon which the majority relies does not apply.  See Mega Child Care, 145 S.W.3d at 176.  There are no decisions from the Texas Supreme Court or this court regarding the statutory construction issues raised in the court=s analysis of the second issue.  Therefore, this court is free to decide on its own which is the better construction of section 17.022 and section 3.05(c).^[6]  See, e.g., In re T.L.C., 948 S.W.2d at 44B45 (disagreeing with and refusing to follow statutory interpretation from opinion of Texas intermediate court in which Texas Supreme Court had denied writ and agreeing with statutory interpretation from opinion of other Texas intermediate court in which no application for writ was filed). 

Does caselaw permit a plaintiff to obtain a default judgment against a nonparty on an unpleaded claim?

The authorities from other courts and from other jurisdictions cited in the majority opinion do not provide strong support for today=s holding.

Fincher v. B&D Air Cond. & Heating Co.

This court relies primarily on Fincher, which research indicates is the only Texas case that supports the majority=s construction of section 17.022.  See 816 S.W.2d at 512B14.  In Fincher, a majority of the court  held that a partner in a Texas general partnership, though not named individually as a defendant, could be held individually liable because he was served with citation on behalf of the partnership.  See id.  In Fincher, the plaintiffs sued Fincher as a party in his capacity as trustee of Yellow Ribbon Enterprises, one of the entities being sued, but not in his  individual capacity.  During trial, it was established that Fincher, individually, was a general partner of one of the property owners being sued.  After the trial had concluded, the trial court allowed the plaintiffs to amend their pleadings to state that Aall of their claims . . . were being alleged against . . . Fincher, Individually as well as in his capacity as Trustee.@  More than two months after the trial, the court entered judgment granting relief against Fincher, both as a trustee and in his individual capacity.  With virtually no analysis, the Fincher court concluded:

Partners who are served are on notice that they will be personally liable for any judgment entered against the partnership.  Their liability is derivative, and they need not be named as defendants individually.  This is the plain meaning of the language of these statutes.

Id. at 512.  Although the Fincher majority cited other statutes, it appears that it based its statement that partners need not be named as defendants solely on section 17.022.  See id. at 512B14.  The Fincher majority did not explain why it concluded that this construction was the unambiguous meaning of section 17.022.  See id.  It did not examine the meaning of Aservice of citation,@ and it did not examine the bedrock principles that a trial court may not render a judgment against any person not sued or base a judgment on any unpleaded claims.  See id. The Fincher court held that AFincher, although not named as a defendant individually, when served as general partner for Yellow Ribbon, was before the trial court in his capacity as general partner and, once the partnership liability was established, a judgment could be taken against him individually.@ Id. at 513.

The dissent in Fincher pointed out what, in Texas jurisprudence, would seem obvious and fundamental: 

The trial court erred when it granted judgment against Fincher individually, when Fincher was not named individually as a defendant until after the trial was completed.

Id. at 514 (Mirabal, J., dissenting).  The Fincher dissent correctly pointed out that general partners who receive service of process for the partnership in a suit in which the partners are not being sued are not put on notice that they are being sued individually and that judgment may be rendered against them individually if they do not file an answer.  Id. at 514B15.  Though the Fincher majority candidly acknowledged the lack of any cases that condone the rendition of judgment against a party who made no appearance in the case and was not named as a defendant until after the trial was over, it nevertheless concluded that Abecause it was not necessary to name Fincher individually, . . . the trial court did not abuse its discretion in allowing the trial amendment.@ Id. at 514.  The Fincher majority erroneously construed section 17.022 and erroneously concluded that this provision authorizes judgment against a nonparty based on an unpleaded claim.  This court should not make the same mistake.

Southcom Group, Inc. v. Plath

As additional support for its conclusion that a partner may be held personally liable even if not sued and not served with citation addressed to the partner, the court cites Southcom Group, Inc. v. Plath, a decision from the Court of Appeals of Georgia.  570 S.E.2d 341 (Ga. Ct. App.  2002).  In Plath, a corporation served a demand for arbitration on an agent of the partnership and its partners, asserting claims for breach of contract.  Id. at 342.  The partnership and its partners were parties to the arbitration.  Id.  After a hearing, an arbitration award was rendered in favor of the corporation and against the partnership but not against the partners.  Id.  The Plath court also concluded that, in its application for a judgment confirming the award, the corporation served and named as a defendants the partnership and the partners.  Id. at 342B43.  The corporation sought a judgment against the partnership and the partners; however, the trial court ruled that the corporation could not obtain a judgment against the partners because the award was only against the partnership.  Id. at 342.  The Plath court reversed and held that the arbitration award authorized a judgment against the partners because they were parties to the arbitration and the demand for arbitration was served on their agent.  Id. at 342B43.  Concluding that, under Georgia law, it did not matter that the arbitration award did not find that the partners were joint and severally liable for the obligation, the Plath court awarded the corporation recovery against the partners.  Id.  Unlike Texas, Georgia has not adopted the Revised Uniform Partnership Act.  See Tex. Rev. Civ. Stat. Ann. art. 6132b cmt. (Vernon Supp. 2005).  The Plath court=s holding is contrary to section 3.05(c) of the Texas Revised Partnership Act, which states that a judgment against a partnership is not a judgment against the partners.  See Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c).  Furthermore, the Plath court does not hold or state that a partner may be held personally liable even if not sued and not served with citation addressed to the partner.  See id. at 342B43.  Therefore, Plath does not support the court=s analysis. 

Foster Lumber Co., Inc.  v. Glad

As additional support for its conclusion that a partner may be held personally liable even if not sued and not served with citation addressed to the partner, the court cites Foster Lumber Co. v. Glad, a decision from the Supreme Court of South Dakota.  303 N.W.2d 815 (S.D. 1981).  In Glad, one partner in a partnership was served with process and the other was not.  Id. at 816. The unserved partner appealed from a default judgment rendered against him by the trial court; the partner who was served did not appeal the default judgment against him.  Id.  The Glad court held that the trial court erred in granting a default judgment against the partner who was not served.  Id.  There was no issue as to whether a partner may be held personally liable even if not sued and not served with citation addressed to the partner, and the Glad court did not state that this could be done under South Dakota law.  Id.  Therefore, Glad does not support the court=s analysis. 

Contrary Cases

The majority appropriately cites three cases that are contrary to today=s analysis.  In Somer & Wand, P.C. v. Rotondi, the New York intermediate appellate court bases one holding on an analogy to New York partnership law, which it states requires partners to be individually named and served with process before they can be held liable for partnership obligations.  219 A.2d 340, 344 (N.Y. App. Div. 1996).  Although the statement in this case is dicta, the New York court cites other cases with holdings to the same effect.  See id.  In Lava Shadows, Ltd. v. Johnson, the New Mexico Court of Appeals held that serving a general partner of a limited partnership with pleadings that did not name the partner individually as a party did not allow the trial court to render judgment against the general partner in his individual capacity.  915 P.2d 331, 332B34 (N.M. Ct. App. 1996).  The court noted the fundamental principle that a judgment may not be rendered against one who is not a party to the lawsuit.  See id.  The court also noted that partnerships are entities distinct from the partners, so that suing and serving a partnership through its general partner should not make the general partner a party.  See id.  The court construed a statute with language similar to section 3.05(c) as referring to service of process addressed to the partner in his individual capacity.  See id.  The holding of the Lava Shadows court is contrary to Fincher and to today=s holding.  Likewise, the Supreme Court of California has held that a judgment cannot be rendered against a partner served with process in a case in which the partner was not named as a party.  See Fazzi v. Peters, 440 P.2d 242, 243B47 (Cal. 1968).  The Fazzi court based its statutory construction mainly on Athe seemingly self-evident proposition that a judgment in personam may not be entered against one not a party to the action.@  Id. at 243.     In sum, although the majority appears to indicate that the states are split on the issue at hand, there are several cases from other states that strongly contradict the majority=s analysis. The only holding that supports it is Fincher, which is unconvincing for the reasons stated above.

Conclusion

The trial majority rendered a $2.5 million default judgment against William Kao, even though the petition on which the judgment was granted (1) did not name him as a defendant in the lawsuit, (2) did not assert any claims against him, (3) did not seek a judgment against him, (4) did not allege that he was a general partner of the limited partnership being sued, and (5) did not seek to hold him liable for the debts or obligations of the defendant limited partnership.  Under mandatory precedent from the Texas Supreme Court, the trial court erred in rendering a default judgment that was not based on the plaintiff=s live pleading. Furthermore, the trial court=s judgment violates Texas Rule of Civil Procedure 239 as well as a bedrock principle of Texas jurisprudence, both of which require  individuals and entities to be  parties to the litigation before default judgments may be rendered against them.  Under the unambiguous language of section 17.022 of the Texas Civil Practice and Remedies Code and  article 6132b-3.05(c) of the Texas Revised Civil Statutes, these provisions are not triggered unless a partner is served with citation informing the partner that he has been sued, and these statutes do not authorize a court to render judgment against a partner in his individual capacity in a case in which the partner has not been sued.  Even if these statutes were ambiguous, the object sought to be attained, the circumstances under which the statutes were enacted, former statutory provisions, and the consequences of the particular statutory construction would mitigate against adopting the majority=s construction.  The three cases on which the majority relies are not binding on this court and are not convincing.  Because error is apparent from the face of the record, this court should sustain William Kao=s second issue and reverse the default judgment against him.

/s/        Kem Thompson Frost

Justice

Judgment rendered and Majority and Dissenting Opinions filed November 21, 2006.

Panel consists of Justices Anderson, Edelman, and Frost.  (Edelman, J., majority).

---

^[1]           The real name of this limited partnership may well be AKao Holdings, L.P.,@ which is the name appellants have used in their notice of appeal and appellate briefing.  However, the petition, citation, motion for default judgment, and default judgment all use the name AKao Holding, L.P.@  Therefore,  that name is used in the initial reference but the defined term AKao Holdings@ is used hereafter.

^[2]           The majority also cites Werner, but Werner states that (1) AJudgment shall not be rendered against one who was neither named nor served as a party defendant@; and (2) AAn exception exists when a person waives service by making a general appearance before the court.@  Werner, 909 S.W.2d at 869B70. Therefore, Werner does not support the majority=s analysis.

^[3]           The majority relies heavily on Fincher v. B&D Air Cond. & Heating Co., 816 S.W.2d 509 (Tex. App.CHouston [1st Dist.] 1991, writ denied); however, Fincher did not involve a default judgment or Texas Rule of Civil Procedure 239.  See Fincher, 816 S.W.2d at 511B14.

^[4]           In fact, our record contains an affidavit from William Kao in which he states that he is the vice president of Bellevue Properties, L.L.C., the general partner of Kao Holdings. 

^[5]           For example, section 2.01 states that a partnership is a legal entity distinct from its partners.  See Tex. Rev. Civ. Stat. Ann. art. 6132b-2.01 (Vernon Supp. 2005).  This being so, it is unnecessary to state that a judgment against the partnership is not a judgment against the partners or that a partnership may sue in its own name; however, that is exactly what section 3.05 says.  Compare Tex. Rev. Civ. Stat. Ann. art. 6132b-2.01 with Tex. Rev. Civ. Stat. Ann. art. 6132b-3.05(c).  Despite this redundancy, the language of section 3.05 still has meaning, and courts should not seek to ascribe some other meaning to these parts of section 3.05 to avoid treating them as surplusage.

^[6]           The majority also states that the Texas Supreme Court has not disapproved of the Fincher court=s construction of the statutes in question; however, inasmuch as the Texas Supreme Court has never addressed these issues, this failure to disapprove hardly informs the analysis.