Supreme Court Holds Out-of-State Sellers Can be Held Responsible for Sales Tax Without Physical Presence in State

Today’s blog is going to deviate from normal trial issues and discuss yesterday’s decision by the United States Supreme Court in South Dakota v. Wayfair, Inc., 585 U.S. ____(2018) (“Wayfair”). Almost everyone now buys goods or services through the internet. So the Wayfair decision will affect everyone who shops on the internet at such websites as Wayfair, Ebay, and Amazon and will allow States to increase annual revenue by billions of dollars that can then be used for local and state-wide projects and funding.

Before Wayfair, the United States Supreme Court held, in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), that a seller had to have a physical presence in the state to have liability to collect and remit sales tax. Not surprisingly many states were unhappy with this holding because it meant that they were going to be deprived of billions of dollars in sales tax revenue that could be used to fatten up state coffers. Also, brick-and-mortar retailers were unhappy with the Quill opinion because it gave online retailers without a physical presence a cost advantage over the brick-and-mortar businesses.  Recognizing that Quill was hopelessly out-of-date in the e-commerce world we live in where purchases are made online or through a mobile device, the Supreme Court decided to reconsider Quill.

In overruling Quill and holding that it was unsound and incorrect, the United States Supreme Court, relying on the Commerce Clause, held that state taxes will be found to not violate the Commerce Clause so long as they (1) apply to an activity with a substantial nexus with the taxing state, (2) are fairly apportioned, (3) do not discriminate against interstate commerce, and (4) are fairly related to the services the state provides. The Supreme Court also stated that Quill was flawed and incorrect and “further removed from economic reality and results in significant revenue losses to the States.” South Dakota v. Wayfair, Inc., 585 U.S. ____(2018). According to the Supreme Court, Quill’s holding also distorted the market and imposed an arbitrary, formalistic distinction that cut against the Commerce Clause because it imposed different results on economically identical actors for arbitrary reasons. Finally, the Supreme Court acknowledged that modern e-commerce does not align with a test that relies on a physical presence and ignores substantial virtual connections to the State. South Dakota v. Wayfair, Inc., 585 U.S. ____ (2018).

Wayfair is a landmark decision and I wonder if it is the first step to significant changes in state and national legal issues (i.e. scope of personal jurisdiction for one) as a result of e-commerce and a person’s virtual presence in a state without a physical presence. The opinions in this blog are solely the author’s and any comments, replies, or suggestions can be sent to john@jrjoneslaw.com.

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The Continuing Saga to Reduce Forum-Shopping in Patent Litigation

Texas lawyers and their clients for many years have been dragged, kicking and screaming, to the United States District Court for the Eastern District of Texas for patent litigation. While it rarely made sense for the litigation to be in East Texas, once the case was filed there, getting the case transferred to a proper venue was practically impossible. You only had to drive through Marshall, Texas to see the cottage legal services industry that sprang up from the ground to see what patent litigation had done to the community.  The real problem was that Plaintiff’s in patent litigation would come up with nearly any excuse or connection to make sure the patent litigation was filed in East Texas.

That all changed with the United States Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands, LLC., 137 S. Ct. 1514, 1521, 197 L.Ed. 2d 816 (2017). TC Heartland held that under 28 U.S.C. 1400(b) a domestic defendant corporation resides only in its state of incorporation. A recent case clarified TC Heartland and reduced forum-shopping in patent litigation a step further when it was faced with the issue of whether a domestic corporation incorporated in a state having multiple judicial districts “resides” for the patent-specific venue statute in each and every district in that state under 28 U.S.C. 1400(b). In re BigCommerce, Inc., 2018 U.S. App. LEXIS 12591, *7 (Fed. Cir. May 15, 2018). Holding that a corporation does not reside in each and every judicial district of the state, the Federal Circuit looked at the plain language of Section 1400(b).

Section 1400(b) states that that “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” According to the Court, a plain reading of “the judicial district” speaks to venue in only one particular judicial district in the state. In re BigCommerce, Inc., 2018 U.S. App. LEXIS 12591, *7 (Fed. Cir. May 15, 2018), citing, NLRB v. Canning, 134 S.Ct. 2550, 2561, 189 L.Ed2d 538 (2014) and Rumsfeld v. Padilla, 542 U.S. 426, 434, 124 S.Ct. 2711, 159 L.Ed.2d 513 (2004) (holding the consistent use of the definite article indicates that there is generally one one proper respondent.”); see also Hertz Corp. v. Friend, 559 U.S. 77, 93, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010) (holding that because “place” in the phrase “principal place of business” in 28 U.S.C. 1332 is singular, it must be a single place). The court also went on and held that it was evident from the general venue rules that if Congress wanted venue to potentially lie in multiple districts, it said so clearly.  In re BigCommerce, Inc., 2018 U.S. App. LEXIS 12591, *8 (Fed. Cir. May 15, 2018).

While the Federal Circuit acknowledged that it is sometimes difficult to determine where a principal place of business is located in a state, it held that “a universally recognized foundational requirement of corporate formation” is the designation of a registered office that will serve as a physical presence within the state for a newly formed corporation. In the absence of an actual principal place of business, the public is entitled to rely on the designation of the registered office as the place where the corporation resides.

As a result, the Federal Circuit held that, under 28 U.S.C 1400(b), in a state with multiple judicial districts, a corporate defendant shall be considered to “reside” only in a single judicial district within that state where it maintains its “principal place of business. or, failing that, the judicial district in which its registered office is located.  In re BigCommerce, Inc., 2018 U.S. App. LEXIS 12591, *16 (Fed. Cir. May 15, 2018). Besides the impact on patent litigation and venue, the In re BigCommerce, Inc. case is a continuing trend to enforce venue statutes strictly and to reduce forum shopping even more than courts and legislatures have already done so.

The opinions in this blog are solely the author’s and any comments, replies or suggestions can be sent to john@jrjoneslaw.com.

Tie-In Statutes, Limitations and the Deceptive Trade Practice Act

One of the issues that arises in litigation involving the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”) is what is the statute of limitations for other statutory claims that allow a violation of a particular statute (for example, see Texas Finance Code Sec. 392.404(a)) to be a deceptive trade practice and allowable as a DTPA claim also. These types of claims are tie-in claims that allow a plaintiff to use the DTPA and its lower causation standard to file a lawsuit and recover damages. One of the questions that arise initially is whether the two-year statute of limitations of the DTPA applies or does another statute of limitations apply based on the underlying nature of the other statutory claim? Fortunately, the United States District Court in Vine v. PLS Fin. Servs., 2018 U.S. Dist, LEXIS 7019 (W.D. Tex. 2018) provides a good framework for this issue and an excellent analysis of what it means to be a “consumer” under the DTPA.

The operative facts in Vine occurred in 2012 and the lawsuit was filed in 2015. The loan brokers were given post-dated checks and allegedly assured the Plaintiffs that the checks would not be cashed and took possession of the checks solely to verify financial information. Needless to say, the loan brokers cashed the checks, the checks bounced and then the loan brokers turned the Plaintiffs over to the District Attorney’s office for prosecution. Not surprising, Plaintiffs filed a lawsuit alleging violations of the DTPA, fraud, violations of Sections 392 and 393 of the Texas Finance Code and malicious prosecution. Defendant Loan Brokers filed a motion for summary judgment on the claims brought by borrowers who defaulted on the payday loans alleging among other things that the claims were barred by the the two-year statute of limitations under the DTPA.

The District Court granted summary judgment on the specific statutory DTPA claims because they were time-barred. However, the claims under the Texas Finance Code that tied-in to the DTPA required a different analysis. As a general rule, when a statutory claim arises under a Texas statute and then the express language of that statute, such as the Finance Code, states that a violation of the Texas Finance Code is also a violation of the DTPA, a party must analyze whether the two-year DTPA limitation period applies. In Vine, the Court looked at the claims under Texas Finance Code Section 392 and determined that the two-year statute of limitations applied because there was no limitations period specifically stated in Texas Finance Code Section 392.The Court, following precedent from other courts, held that when statutes that do not have a specific limitations are tied into the DTPA, the two-year limitations period is the applicable default limitations. Vine v. PLS Fin. Servs., 2018 U.S. Dist, LEXIS 7019 *25-26 (W.D. Tex. 2018).

However, the claims under Texas Finance Code Section 393 were not barred because even though they were plead as a tie-in to the DTPA, Texas Finance Code Section 393 had its own specific four-year limitations period. When a specific statute with its own limitations is enacted, it controls over the general statute of limitations on the same subject. Vine v. PLS Fin. Servs., 2018 U.S. Dist, LEXIS 7019 *26-27  (W.D. Tex. 2018). As a result, Plaintiff’s claims under Texas Finance Code Section 393 were not barred because the limitations period in Texas Finance Code Section 393 was passed legislatively after the enactment of the DTPA. Therefore, Courts must assume that “Congress passed each subsequent law with full knowledge of the existing legal landscape.” Vine v. PLS Fin. Servs., 2018 U.S. Dist, LEXIS 7019 (W.D. Tex. 2018), citing, In re Nw. Airlines Corp., 483 F.3d 160, 169 (2d Cir. 2007) (citing Miles v. Apex Marine Corp., 498 U.S. 19, 32, 111 S. Ct. 317, 112 L. Ed. 2d 275 (1990)). Accordingly, the Court denied the motion for summary judgment on the Texas Finance Code Section 393 claim based on alleged limitations.

Tie-in claims under the DTPA are not utilized as much as they should be in my opinion. However, when they are used, both parties should look at the specific limitations period applicable to other statutory claims brought through the DTPA. As a side note, the Vine case should also be reviewed for Judge Martinez’ excellent analysis of incidental services and standing under the DTPA to determine if a person is a consumer and can bring a DTPA claim. The opinions in this blog are solely the author’s and all comments, replies or suggestions can be sent to john@jrjoneslaw.com.

Driver’s Licenses and Perfection of Security Interests in Texas

A recent bankruptcy case in Georgia over an objection to a claim and related security interest is the basis for this month’s blog. Before your eyes glaze over because of the mention of the word bankruptcy, this month’s topic is important in the day-to-day world when a creditor files and records a financing statement and believes it has a perfected security interest.

The bankruptcy court in Georgia was faced with the issue of whether to sustain or reject the Chapter 12 debtor’s objection to the bank’s secured claim because the name used on the financing statement was the signed name of the debtor “Kenneth Pierce” on his driver’s license as opposed to the typed name of the debtor “Kenneth R. Pierce” on his driver’s license.  As a result, the debtor argued that the claim was an unsecured claim as opposed to a secured claim. In re Pierce, 2018 Bankr. LEXIS 287 (S.D. Ga. Feb. 1, 2018).

The court sustained the debtor’s objection based on Georgia’s UCC statute that states that the debtor’s name is sufficient on the financing statement “if the debtor is an individual to whom the state has issued a driver’s license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license.” In re Pierce, 2018 Bankr. LEXIS 287 *10. However, the inquiry must go further because the financing statement substantially satisfies the requirements, even if there are minor omissions and errors, unless the errors or omissions make the financing statement “seriously misleading.” In re Pierce, 2018 Bankr. LEXIS 287, *10, citing, O.C.G.A. Section 11-9-506(a).

Although acknowledging that this was a case of first impression, the Georgia court noted that a seemingly-minor error in other cases has rendered the financing statement seriously misleading in other cases. It gave examples of cases where the secured party listed the debtor as “Net Work Solutions, Inc.” instead of “Network Solutions, Inc.” In re Pierce, 2018 Bankr. LEXIS 287 *11, citing, Receivables Purchasing Co., Inc. v. R & R Directional Drilling, LLC., 263 Ga. App. 649, 651-52, 588 S.E.2d 831 (2003); Bus. Corp. v. Choi, 280 Ga. App. 618, 619, 634 S.E.2d 400 (2006) (“Gu, Sang Woo” instead of “Sang Woo Gu”); see also In re Nay, 563 B.R. 535 (Bankr. S.D. Ind. 2017) (holding that filing under “Ronald Mark May” verus driver’s license name of Ronald Markt Nay was a fatal error”). The court also looked at other jurisdictions and the use of signed names, including nicknames, and came to the same conclusion that the signed name versus the typed name made the financing statement seriously misleading. In re Pierce, 2018 Bankr. LEXIS 287, *13-14. As a result, the bank’s claim was held to be unsecured.

While this was a Georgia case, a Texas courts would probably reach the same result. Texas UCC Section 9.503 (a)(4) has essentially the identical statutory language as its Georgia counterpart. Also, Texas courts, both state and bankruptcy, have taken a strict approach to the names on financing statements to determine if perfection occurred and the financing statements were not seriously misleading. The cases of Continental Credit Corp. v. Wolfe City Nat’l Bank, 823 S.W.2d 687 (Tex. App. – Dallas 1991, no writ) (holding that use of trade name was seriously misleading) and In re Jim Ross Tires, Inc., 379 B.R. 670 (Bankr. S.D. Tx. 2007) (holding that failure to include a letter “s” to include a plural in the debtor’s business name and listing debtor by business name and an expired assumed name were fatal to creditors’ claims) are the best pace to start if this issue arises in Texas. Both cases provide a lengthy discussion and analysis of the issue.

The opinions in this blog are solely the author’s and any comments, replies or suggestions should be sent to john@jrjoneslaw.com. Happy Easter!

Demands on Time-Barred Debt and the Fair Debt Collection Practices Act

This month’s blog will discuss demand letters on time-barred debt. This raises the issue of whether sending out a demand letter on a time-barred debt automatically constitutes a violation of the Fair Debt Collection Practices Act (“FDCPA”)?  Before discussing that issue, let’s look at what needs to be proved first and the standard by which the potential violations will be measured.

In order to prevail on an FDCPA claim, a person must establish that: (1) he was the object of collection activity arising from consumer debt; (2)  that the Defendant qualifies as a “debt collector” under the FDCPA; and (3) the Defendant engaged in an act or omission prohibited by the FDCPA. Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332 (S.D. Fla. 2017), citing, Dunham v. Lombardo, Davis & Goldman, 830 F.2d 1305, 1306-07 (S.D. Fla. 2011). Violations of the FDCPA are measured under the “least sophisticated consumer” standard. The least sophisticated consumer standard “looks to the tendency of the language to mislead the least sophisticated recipients of a debt collection letter.” Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332 (S.D. Fla. 2017), citing, LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1193-94 (11th Cir. 2010)The least sophisticated consumer is presumed to possess a rudimentary amount of information and a willingness to read a collection notice with some care and has an objective component to prevent liability for bizarre interpretations of collection notices. Id.

Many debt collectors do not accept time-barred debt at all for collection. Time-barred simply means that the time period for a filing a lawsuit has passed or expired. However, there are debt collectors who do try to collect on time-barred debt. If you are one of them, the Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332 (S.D. Fla. 2017) case is an excellent example of the how to shape a demand letter on time-barred debt to avoid a violation of the FDCPA.

In Valle, the demand letter stated that “The law limits how long you can be sued on a debt. Because of the age of your debt, LVNV Funding LLC will not sue you for it, and LVNV Funding LLC will not report it to any credit reporting agency.” Paraphrasing, the demand letter then warned that taking certain actions may “renew” the debt and start the time period for the filing of a lawsuit but that debtor should determine the effects of any actions you take with respect to this debt. Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332, 1339-40 (S.D. Fla. 2017).

In filing the lawsuit against the debt collector, the debtor’s position was that the debt collector used false, deceptive, or misleading language in connection with debt collection because the debt-collector did not state that the debt was a”absolutely time-barred” and failed to adequately disclose the impact that making a payment would revive the debt. Id. The Debtor cited a number of cases in support of its position. The Florida District Court in Valle disagreed and held that the demand letter must be read in the proper context.

Here, the debt collector informed the Debtor that there are legal limits to how long she could be sued on the debt and that she would not be sued. The court also rejected Debtor’s arguments that the debt collector wrongfully portrayed and misrepresented the effect of settling the debt because the settling for a portion of the debt may have different tax consequences because the debt collector stated that the debtor “should determine the effect of any actions you take with respect to this debt.” Id. As a result, there was no misleading or false representation.

I commend the Valle case to everyone. It is full of other relevant topics such as the benign language exception and provides a good road map on making a demand for time-barred debt where a debt collector clearly states that no lawsuit will be filled and acknowledges the time-barred nature of the debt. The opinions in this blog are solely the author’s and any comments, suggestions or replies can be sent to john@jrjoneslaw.com.

Review of Temporary Injunctions and Temporary Restraining Orders in Texas

Every two years the Texas legislature meets and changes the rules governing practice and procedure in Texas. One of the changes this past session was the repeal of Texas Government Code Section 22.225(b), which prohibited a party from filing a petition for review in the Supreme Court of Texas after of an appeal of an order denying or granting a temporary injunction or overruling a motion to dissolve a temporary injunction. As a result, parties can now file a petition for review after a court of appeals decision on a temporary injunction order. So while discussing that change, it is important to go over the basics of reviewing temporary injunctions and a temporary restraining order.

Temporary restraining orders (“TROs”) cannot be appealed because they expire by the express terms of Texas Rule of Civil Procedure 680. TROs are good for fourteen days and can be extended only once for an additional fourteen days upon a showing of good cause (unless the parties agree to a longer extension).  There is, however, at least one reported case stating, that if an issue is of such an extreme and serious nature, that mandamus relief may be available. However, in that case, the Texas Attorney General obtained mandamus relief because the TRO would have let federal funding stop if the State of Texas was required to comply with the TRO. In re Office of the Atty. Gen., 257 S.W.3d 695, 698 (Tex. 2008). It is doubtful that there are many serious issues that will arise for mandamus to be available in an ordinary lawsuit.

On the other hand, temporary injunctions (or orders related to denial of or granting a motion to dissolve a temporary injunction) are an appealable interlocutory order. See Tex. Civ. Prac. & Rem. Code 51.014(a)(4). This would also include any orders that modify the temporary injunction if it covers the same subject matter. Appellate review of a temporary injunction is based on whether the trial court clearly abused its discretion standard. Henry v. Cox, 520 S.W.3d 28, 33-34 (Tex. 2017). A discussion of an abuse of discretion standard of review is beyond the scope of this blog. However, there is a great general resource published in 42 St. Mary’s Law Journal 3 (2010) by W. Wendell Hall entitled “Standards of Review in Texas” that will help get you started.

The opinions in this blog are solely the author’s and any comments, suggestions, or replies can be sent to john@jrjoneslaw.com.

 

Apex Depositions and the Crown Central Guidelines in Texas

The Supreme Court of Texas first adopted the apex deposition guidelines in Crown Central Petroleum Corp. v. Garcia, 904 S.W.2d 125 (Tex. 1995). Apex deposition guidelines apply when a party seeks to depose a corporate president or other high level corporate official. Id. at 128.  The apex doctrine prevents the needless deposition of high level officials who are noticed solely because of the official’s position within the organization and is equally applicable to government organizations. In re Titus Cty, 412 S.W.3d 28, 35 (Tex. App.-Texarkana 2013, orig. proceeding) (quoting Simon v. Bridewell, 950 S.W.2d 439, 442 (Tex. App. – Waco 1997, no pet.) (per curiam)). Once a party  receives a deposition notice for a high ranking official, what should the party do?

To prevent an apex deposition, a party needs to initiate the Crown Central guideline proceedings by filing a motion and moving for protection and filing the corporate official’s affidavit denying any knowledge of relevant facts. The trial court must then evaluate the motion by deciding if the party seeking the deposition has “arguably shown the official has any unique or superior personal knowledge of discoverable information.” If the party seeking the deposition cannot show that the official has any unique or superior personal knowledge, the trial court should not allow the deposition to go forward without a showing, after a good faith effort to obtain the discovery through less intrusive means, that (1) there is a reasonable indication that the official’s deposition is calculated to lead to the discovery of admissible evidence, and (2) that the less intrusive methods of discovery are unsatisfactory, insufficient, or inadequate. Crown Central Petroleum Corp. v. Garcia, 904 S.W.2d 125, 128 (Tex. 1995).

A mere showing that the official has knowledge of discoverable information is not sufficient. The Crown Central guidelines require that the official have unique or superior personal knowledge of discoverable information. Otherwise, the apex guidelines would be meaningless if simple knowledge was all that had to be shown. In re Alcatel USA, Inc., 11 S.W.3d 173, 177 (Tex. 2000), citing, AMR Corp. v. Enlow, 926 S.W.2d 640 (Tex. App.-Fort Worth 1996, no writ) (applying apex guidelines and denying plaintiff’s request to depose Robert Crandall, American Airlines, Inc. CEO).

The apex guidelines do have some limits. If an official is named as a defendant based on some dispute that is unrelated to his status as a high-level official, then a plaintiff may have the right to depose the official as any other party. In re Titus Cty, 412 S.W.3d 28, 35 (Tex. App.-Texarkana 2013, orig. proceeding) (holding the doctrine only applies when the deponent has been noticed solely because of his corporate position).

Happy New Year’s to all our loyal readers. Your support and comments have been tremendously encouraging to us as we have now completed our fifth year as a blog. The opinions of this blog are solely the author’s and your comments, suggestions and replies should be sent to john@jrjoneslaw.com.