law-forfeiture-of-corporate-privileges | can corporation be a litigant if privileges revoked? |
liability-of-directors-officers-of-corporation | forfeiture of corporate privileges | individual liability for debt |
liability based on personal guaranty agreement | alter ego theory |  


Is the Cruse law firm barred from appealing the trial court's judgment?

As a threshold matter, O'Quinn contends that the forfeiture of the Cruse law firm's corporate charter has
stripped it of its right to bring this appeal.  See Tex. Tax. Code Ann. §171.252 (Vernon 2008) (providing that if
the corporate privileges of a corporation are forfeited under this subchapter, “the corporation shall be denied
the right to sue or defend in a court of this state.").  Cruse does not respond to this contention, and nothing in
the record reflects that the Cruse law firm's charter has been revived.  And, given that Leonard Cruse is the sole
owner of the law firm and he has been disbarred, it is unlikely that the corporation could be revived or its
corporate privileges reinstated during the pendency of this appeal.

Cruse v. O'Quinn (Tex.App.- Houston [14th Dist.] Nov. 25, 2008)(Brown)
(
attorney fee sharing agreement void as against public policy, illegal contract, attorney disbarred
forfeiture of corporate privileges) (attorney fee sharing agreement void as against public policy, voiding illegal
contract, unenforceable contract)
AFFIRMED: Opinion by
Justice Brown  
(Before Chief Justice Hedges, Justices Guzman and Brown)
14-08-00103-CV        Leonard A. Cruse and Cruse and Associates, P.C. v. John M. O'Quinn and John M.
O'Quinn & Associates, L.L.P.--Appeal from 212th District Court of Galveston County
Trial Court Judge: Susan Elizabeth Criss    
However, in Vanscot Concrete Co. v. Bailey, the Texas Supreme Court held that a corporation that had ceased
to exist could nevertheless appeal a trial court's judgment against it.  See 853 S.W.2d 525, 526-27 (Tex. 1993)
(per curiam).  The court expressly disagreed with the court of appeals's dismissal of Vanscot Concrete's appeal
on the grounds that a nonexisting appellant cannot appeal, explaining that “corporations have the same right to
have judgments against them revised by the appellate courts as have persons, and that even extinguished
corporations are entitled to a hearing before the appellate courts."  Id. at 526 (citing Tex. Trunk Co. v. Jackson,
85 Tex. 605, 22 S.W. 1030, 1032 (1893)).  Although Vanscot Concrete was a defendant appealing an adverse
judgment against it, rather than a plaintiff appealing a summary judgment granted in favor of a defendant, and
the specific Tax Code provision O'Quinn cites was not at issue, we conclude that the outcome should be no
different here.  As the Court broadly stated, "the reasoning for allowing a corporation which has ceased to exist
to prosecute an appeal is applicable in any circumstance."  Id.  

Further, even the cases O'Quinn cites in support of its argument recognize that Tax Code section 171.252 does
not prevent a corporation that has forfeited its corporate privileges from defending claims against it.  See Mello
v. A.M.F. Inc., 7 S.W.3d 329 (Tex. App.- Beaumont 1999, pet. denied) (stating that, despite the clear language
of section 171.252, “the statute has historically been limited to prohibit defendants from bringing cross actions,
not from merely defending lawsuits); Hardwick v. Austin Gallery of Oriental Rugs, Inc., 779 S.W.2d 438, 441
(Tex. App.- Austin 1989, writ denied), superseded on other grounds by statute as stated in Bair Chase Prop.
Co., L.L.C. v. S & K Dev. Co., Inc., 260 S.W.3d 133 (Tex. App.- Austin 2008, pet. filed) (rejecting contention that
section 171.252 is jurisdictional and further noting that a corporate defendant that has failed to pay franchise
taxes may nevertheless set up purely passive defenses, its answer may not be stricken, and the corporate
defendant may offer evidence that negates a plaintiff's claim).  Here, although the Cruse law firm was a plaintiff
below, in the procedural posture before us, it is not seeking affirmative relief.  Instead, it is appealing a trial
court's grant of partial summary judgment against it, much like Vanscot Concrete sought to appeal an adverse
judgment following a jury trial.  

In this situation, we are guided by the Texas Supreme Court's reasoning in Vanscot Concrete that “even
extinguished corporations are entitled to a hearing before the appellate courts."  See 853 S.W.2d at 526.  We
will therefore address the merits of the Cruse law firm's appeal.


McCarroll v. My Sentinel, LLC (pdf) (Tex.App. - Houston [14th Dist.] Dec. 10, 2009)(Hedges) (personal liability
imposed on officers and directors based on forfeiture of corporate charter, res judicata not applicable)
My Sentinel, L.L.C. sued Steven and Robbie McCarroll, among other directors and officers of 4M Security
Systems, Inc., to collect on a judgment previously obtained against that corporation.  My Sentinel alleged that 4M’
s corporate charter had been forfeited, and on that basis, My Sentinel sought to
impose liability for the
corporation’s debt against its directors and officers pursuant to Texas Tax Code section 171.255.  At the
conclusion of the plaintiff’s case-in-chief, the McCarrolls moved for
directed verdict on the grounds that (1)
application of the doctrine of res judicata barred My Sentinel’s claim, and (2) the debt in question was not
created or incurred in Texas as required for the imposition of liability against a director or officer of a corporation
under section 171.255.  The trial court denied the motion, and at the conclusion of trial awarded My Sentinel
$58,406.89 jointly and severally against the McCarrolls.[1]  In their two issues on appeal, the McCarrolls contend
that the trial court erred in denying each of their grounds for directed verdict.  We affirm.
AFFIRMED: Opinion by
Chief Justice Hedges    
Before Chief Justice Hedges, Justices Seymore and Sullivan   
14-08-01171-CV  Steven and Robbie McCarroll v. My Sentinel, LLC.,   
Appeal from 405th  District Court of Galveston County
Trial Court Judge: Wayne J. Mallia



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