Date: 01-21-2015

Case Style: Master Capital Solutions Corp. v. Sergio Rene Sanchez Araujo, Lorena Armida Beltran Juarez and Grupo Promotor Setresa S. De RL. de C.V.

Case Number: 08-13-00327-CV

Judge: Yvonne T. odriguez

Court: Texas Court of Appeal, Eighth District on appeal from the County Court at Law No 3 of El Paso County

Plaintiff's Attorney: Stev James for Sergio Rene Sanchez Araujo, Lorena Armida Beltran Juarez and Grupo Promotor Setresa S. De RL. de C.V.

Defendant's Attorney: John Henry for Master Capital Solutions Corp

Description: Sergio Rene Sanchez Araujo, Lorena Armida Beltran Juarez, and Grupo Promotor Setresa
S. de RL. de C.V. (hereinafter, “Appellees”) sued Master Capital Solutions Corp. (hereinafter,
“Master Capital”) and two other parties1 for failing to fund a promised $3.65 million real estate
loan. After Appellees obtained a default judgment against Master Capital and Liberty Lending,2
Master Capital moved for a new trial to set aside the judgment. The trial court held a hearing on
the motion and denied it. On appeal, Master Capital argues in one issue that the default judgment
1 These parties were Liberty Lending Group, Inc. (hereinafter, “Liberty Lending”) and Fernali Ferrice, the president
of Master Capital. Appellees eventually nonsuited their action against Ferrice.
2 Liberty Lending is not a party to this appeal.
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should be overturned because service of process was defective. We reverse and remand.
FACTUAL AND PROCEDURAL BACKGROUND
Appellees sued Master Capital in December 2012. In their petition, Appellees alleged
Master Capital “is an entity that has its principal place of business in Illinois, but it regularly
conducts business in Texas.” Appellees elected to serve Master Capital “by certified mail sent to
it at 17W240 22nd Street, Oakbrook Terrace, Illinois 60181.” The return of service states copies
of the citation and petition were delivered to “Master Capital Solutions” by certified mail at the
above address. The return is signed by the process server and contains the return receipt, which
bears what appears to be the signature of an individual named “Amber Johnson.”
After the time to answer had elapsed, Appellees moved for a default judgment in May
2013. In their motion, Appellees alleged that Master Capital had not answered despite being
served by certified mail and having a representative contact Appellees’ counsel by phone. On this
record, the trial court granted a default judgment in August 2013.
The next month, Master Capital moved for a new trial. In its motion, Master Capital
acknowledged that it “was served, but did not timely answer.” Master Capital nonetheless argued
its failure to answer was unintentional because Ferrice was under the impression, after several
conversations with Appellees’ counsel, that Appellees “were going to pursue . . . Liberty Lending
. . . and that he and Master Capital would be dismissed from the lawsuit.” To bolster its argument,
Master Capital submitted an affidavit executed by Ferrice. In his affidavit, Ferrice averred that
Master Capital “received documents concerning [the] lawsuit . . . .”
The trial court held a hearing on Master Capital’s motion the following month. At the
hearing, counsel for Master Capital argued that the default judgment should be set aside on several
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bases, including that Master Capital satisfied each element of the Craddock test. See Craddock v.
Sunshine Bus Lines, Inc., 134 Tex. 388, 392-93, 133 S.W.2d 124, 126 (1939)(holding that
defendant is entitled to a new trial if he demonstrates that: (1) his failure to appear was not
intentional or the result of conscious indifference; (2) there is a meritorious defense; and (3) the
granting of a new trial will not operate to cause delay or injury to the opposing party). While
Master Capital’s counsel was arguing how the Craddock elements were met, the trial court asked
Appellees’ counsel if Master Capital received proper notice. Appellees’ counsel answered, “No
issue as to notice and service.” Later during the hearing, Appellees’ counsel related:
There was never any intention to let this man go. And we served him and
he didn’t answer. He even asked for an extra copy of the petition through one of
his associates and we sent it to him because he said he had lost it. So he knew.
He just didn’t answer.
After considering the parties’ arguments, the trial court took the matter under advisement. A few
days later, it signed an order denying Master Capital’s motion.
On appeal, Master Capital does not seek reversal of the trial court’s default judgment on
the grounds raised in its motion for new trial. Rather, Master Capital argues the basis of its appeal
is a defect in service “subsequently discovered” after the trial court signed the order denying its
motion for new trial. That defect, according to Master Capital, is two-fold. First, Appellees
failed to designate an agent for service of process in its petition. Second, process was delivered to
a person not authorized to accept service.
DEFECTIVE SERVICE OF PROCESS
In its sole issue, Master Capital contends the default judgment is void because the record
fails to establish that it was served in strict compliance with applicable requirements. We agree.
Standard of Review
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It is well “established . . . that a default judgment cannot withstand direct attack by a
defendant who complains that he was not served in strict compliance with applicable
requirements.” Wilson v. Dunn, 800 S.W.2d 833, 836 (Tex. 1990). When reviewing the
propriety of a default judgment, we do not indulge any presumptions in favor of proper issuance,
service, and return of citation. Id. (citing Uvalde Country Club v. Martin Linen Supply Co., 690
S.W.2d 884, 885 (Tex. 1985)(per curiam)). Instead, the prevailing party bears the burden to
prove service of process was proper. Primate Constr., Inc. v. Silver, 884 S.W.2d 151, 153 (Tex.
1994)(per curiam). If the record fails to show strict compliance with the applicable requirements
relating to the issuance, service, and return of citation, the attempted service of process is invalid
and of no effect. Wilson, 800 S.W.2d at 836. A party may raise defective service for the first
time on appeal. Id. at 837.
Applicable Law
Because a corporation is not a person capable of accepting process, it must be served
through an agent. Paramount Credit Inc. v. Montgomery, 420 S.W.3d 226, 230
(Tex.App.--Houston [1st Dist.] 2013, no pet.). Under the Texas Business Organizations Code, a
domestic or foreign corporation authorized to transact business in Texas may be served with
process through its president, any vice president, or its registered agent. TEX.BUS.ORGS.CODE
ANN. §§ 5.201(b), 5.255(1)(West 2012). Accordingly, when a corporation is served by registered
or certified mail as authorized by Rule 106, the record must show that citation was delivered to the
defendant through an agent authorized to receive service of process for the corporation in order to
establish that the corporation was served. See TEX.R.CIV.P. 107(c)(requiring return of service to
contain the return receipt with the addressee’s signature); Reed Elsevier, Inc. v.
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Carrollton-Farmers Branch Indep. Sch. Dist., 180 S.W.3d 903, 905 (Tex.App.--Dallas 2005, pet.
denied)(concluding that return of service was defective because it did not indicate the capacity of
“Danielle Smith” or why she was served with process); Barker CATV Const., Inc. v. Ampro, Inc.,
989 S.W.2d 789, 793 (Tex.App.--Houston [1st Dist.] 1999, no pet.)(holding that the return
showing service on “James Barker” does not establish that he was defendant’s agent or that Barker
CATV Construction, Inc. was served); Verlander Enter., Inc. v. Graham, 932 S.W.2d 259, 261
(Tex.App.--El Paso 1996, no writ)(holding that a notation of “Jim Gore” rather than “[corporation]
through its vice-president, Jim Gore” on return did not establish that person served was in fact
corporation’s agent for service of process, nor did it establish that corporation was served, and thus
return was insufficient to convey jurisdiction over corporation upon trial court); Bavarian
Autohaus, Inc. v. Holland, 570 S.W.2d 110, 113 (Tex.Civ.App.--Houston [1st Dist.] 1978, no
writ)(holding that service was defective where citation recited that it was to be issued to Bavarian
Autohaus, Inc., a Texas corporation, by serving its agent, Charles Vann, but return showed service
on “Clint Hughes V. Pres.”, despite statute making vice-presidents appropriate agents for service).
Discussion
Service of process on Master Capital was ineffective because the record does not show that
it was served through an agent authorized to receive service of process on its behalf. Appellees
did not identify in their petition any individual authorized to accept service on Master Capital’s
behalf. Instead, they requested the issuance of service on Master Capital by certified mail. The
return of service indicates that process was executed on Master Capital by mailing copies of the
citation and petition to it at the address listed in the petition and that an individual named Amber
Johnson accepted service on Master Capital’s behalf by signing the return receipt. But there is no
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showing in the record that Amber Johnson is authorized to accept service on Master Capital’s
behalf. The face of the record does not identify Amber Johnson or her status or affiliation, if any,
with Master Capital. Neither the return of service nor any other portion of the record designates
Amber Johnson as Master Capital’s authorized representative or indicates that she has the
authority to receive service on Master Capital’s behalf. Indeed, the return of service does not
indicate the capacity in which Amber Johnson signed the return receipt or explain why she signed
the receipt. It is simply not possible to determine from the record who Amber Johnson is, much
less whether she is an agent authorized to accept service on Master Capital’s behalf. Because the
record does not indicate Amber Johnson’s capacity or authority, if any, to receive service on
Master Capital’s behalf, Appellees have failed to establish that Master Capital was served through
her in accordance with applicable requirements. Thus, service of process was invalid.
Appellees contend Master Capital waived its complaint of defective service because it
judicially admitted in its motion for new trial and at the hearing on the motion that it was duly
served. To support their contention, Appellees direct our attention to Master Capital’s
statements—recounted above—acknowledging being served and cite the aforementioned Wilson
v. Dunn and Metro A, LLC v. Polley, No. 02-09-00025-CV, 2011 WL 4413233 (Tex.App.--Fort
Worth Sept. 22, 2011, pet. denied)(mem. op.). But Appellees’ reliance on Wilson and Metro A,
LLC is misplaced.
In Wilson, the Texas Supreme Court recognized that a defendant may waive a complaint
concerning defective service by conceding the issue. 800 S.W.2d at 837. There, the Court
ultimately held that the defendant has not conceded the issue because he had only admitted receipt
of the lawsuit rather than service of the lawsuit. Id. In reaching this conclusion, the Court
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demonstrated the manner in which waiver could occur by distinguishing the situation in Wilson
from those in two courts of appeals opinions, stating that in those cases “the defendant admitted
not simply that process was received, but that it was ‘duly served.’” Id. (citing First Nat’l Bank v.
Peterson, 709 S.W.2d 276, 280 (Tex.App.--Houston [14th Dist.] 1986, writ ref’d n.r.e.) and Hurst
v. A.R.A. Mfg. Co., 555 S.W.2d 141, 142 (Tex.Civ.App.--Fort Worth 1977, writ ref’d n.r.e.)). In
Peterson, the court found waiver based on statements made in the appellant’s brief and in an
affidavit filed in support of a motion for new trial that admitted the facts of service, not just receipt
of suit papers. 709 S.W.2d at 280-81. There, the bank’s president averred in his affidavit in
support of the bank’s motion for new trial that he “was personally delivered” a copy of the
pleading on a specific day, and the bank acknowledged in its appellate brief that the pleading was
“served” on it on the day identified in the president’s affidavit. Id. at 280. In Hurst, the court
found waiver based on statements made in the appellant’s brief. 555 S.W.2d at 142. There, the
appellant did not complain of defective service and admitted in his brief that he was duly served.
Id.
In Metro A, LLC, the court held that the appellants judicially admitted, clearly and
unequivocally, that they were duly served. 2011 WL 4413233, at *4. There, the plaintiff elected
to serve the appellants by certified mail, and the return receipts were signed as received between
certain dates. Id., at *2. The trial court signed a no-answer default judgment, and the appellants
moved for a new trial, which was overruled by operation of law. Id. On appeal, the appellants
argued that service was defective because no agents authorized to accept service on their behalf
signed the return receipts. Id., at *3. The court disagreed. Relying on Peterson and
distinguishing Wilson, the court concluded that appellants had waived their complaint because in
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the motion for new trial they admitted that they were served on one of two specific days and they
did not otherwise challenge, either in the motion or attached exhibits, the sufficiency of service by
characterizing it as receipt of process rather than service of process. Metro A, LLC, 2011 WL
4413233, at *3-*4.
Here, Master Capital did not waive its complaint concerning defective service by
conceding the issue because, like the appellant in Wilson and unlike those in Peterson, Hurst, and
Metro A, LLC, Master Capital admitted receipt of the lawsuit, not that it was “duly served.”
Although Master Capital stated in its motion for new trial that it was “served,” it did not admit any
of the underlying facts that would show that it was served in accordance with the rules of civil
procedure or applicable law. Unlike the appellants in Metro A, LLC, Master Capital did not
identify in its motion for new trial any dates of possible service and, Ferrice’s affidavit, raised facts
suggesting that Master Capital received notice rather than service. Further, unlike the bank
president in Peterson, Ferrice averred in his affidavit that he received documents concerning the
lawsuit, not that he was personally served with the pleadings. Indeed, nowhere in his affidavit
does Ferrice state that he was personally served with citation as an agent for Master Capital.
Moreover, unlike the appellant in Hurst, Master Capital is complaining of defective service on
appeal and has not admitted in its brief that it was duly served. Houston Precast, Inc. v. McAllen
Constr., Inc., No. 13-07-135-CV, 2008 WL 4352636, at *2 n.21 (Tex.App.--Corpus Christi
Sept. 25, 2008, no pet.)(counsel’s statement at hearing that his client “was served on November
2nd” was not a judicial admission that defendant was duly served); Benefit Planners, L.L.P. v.
RenCare, Ltd., 81 S.W.3d 855, 861 (Tex.App.--San Antonio 2002, pet. denied)(statements in
affidavit that agent for service of process “was served with process” and “was personally served”
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were not judicial admissions of proper service); Smith v. U.S. Auto. Acceptance 1995-I, Inc., No.
05-98-00061-CV, 2000 WL 375249, at *1-*2 (Tex.App.--Dallas April 13, 2000, no pet.)
(statements in affidavit that defendant “was served” were not judicial admissions of proper service
because defendant did not admit to any of the underlying facts that would show service complied
with the rules); McGraw-Hill, Inc. v. Futrell, 823 S.W.2d 414, 417-18 (Tex.App.--Houston [1st
Dist.] 1992, writ denied)(statements in motion removing case to federal court that defendant “was
served with process” and received a copy of the initial pleading were not judicial admissions of
being “duly served”).
The statements made in Master Capital’s motion for new trial, in Ferrice’s affidavit, and at
the hearing on the motion reflect actual knowledge of the pendency of the suit, and the actions
taken by Ferrice on Master Capital’s behalf were consistent with that knowledge. But these
actions are irrelevant in the absence of proper service. This is because actual notice to a
defendant, without proper service, is not sufficient to convey upon the court jurisdiction to render a
default judgment. Wilson, 800 S.W.2d at 836-37. Accordingly, the trial court erred in granting a
default judgment against Master Capital.
Master Capital’s issue is sustained.

Outcome: The trial court’s judgment is reversed, and the cause is remanded for further proceedings.

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