An Opinion in favor of Ryan & Company's client was issued in an unclaimed property case by the Texas Third District Court of Appeals (the "Court") in Metromedia Restaurant Services v. Strayhorn, No. 03-05-00006-CV, 2006 Tex. App. LEXIS 1126 (Tex. App--Austin Feb. 10, 2006). The Court reversed the district court's judgment against Metromedia Restaurant Services, Inc. ("Metromedia"), S & A Restaurant Corporation, and Steak & Ale of Texas, Inc. assessing over $500,000 in liability for failure to remit unclaimed employee wages to the Comptroller pursuant to Chapter 74 of the Texas Property Code. The case was remanded to determine whether attorneys' fees are available to either Metromedia or the Comptroller under the Declaratory Judgments Act.
The case involves the deduction of a $15 "processing fee" from the unclaimed property delivered to the Comptroller. It was not contested that the deduction is improper. However, the Comptroller assessed Metromedia, not S & A Restaurant Corporation or Steak & Ale of Texas, Inc., and the Comptroller proceeded to trial, electing not to join either of the other two entities as a party. Because no administrative hearings process is currently available by law to contest unclaimed property assessments, Metromedia filed a lawsuit. In district court, a jury found that all three entities were "holders" of the unclaimed property as defined in Property Code Section 72.001. The jury also found that Metromedia "operated as a single business enterprise" with both of the other two entities during the relevant time periods. Based on these jury findings, the district court entered judgment against all three entities, jointly and severally, for the entire amount of the funds that had been improperly retained as well as statutory penalties and attorneys' fees.
The Court found that regardless of any of the facts that gave rise to the liability, due process requires that a judgment may not be granted in favor or against a party not named in the lawsuit. Therefore, the Comptroller cannot impose liability upon either S & A Restaurant Corporation or Steak & Ale of Texas, Inc. using a corporate veil-piercing theory, such as "alter ego" or "single business enterprise," by a means that ignores due process. The lesson to be learned--name the correct party, or at least everyone that might reasonably be the correct party.
The secondary attempt by the Comptroller to prove that Metromedia was liable as the "holder" of the unclaimed property as required by Property Code Section 72.001 also failed. The Comptroller had the burden of proving that Metromedia was either: (1) in possession of the retained funds, or (2) indebted to the employees of Steak & Ale of Texas, Inc. for the retained funds. Steak & Ale of Texas, Inc. and Metromedia are wholly owned subsidiaries of S & A Restaurant Corporation. The entities used a "concentrated account" owned and controlled by S & A Restaurant Corporation from which funds were transferred to and from each subsidiary's account. A process was used of transferring out all deposits and transferring in only the amounts necessary to cover items that were presented for payment on a daily basis. Thus, the subsidiary accounts were "zero-balance accounts"--accounts that showed a zero balance at the close of each business day. Evidence that the relevant funds may have passed through Metromedia's account did not prove Metromedia was currently in possession of the unclaimed funds. In addition, the undisputed evidence in the record conclusively showed that the wages in question were for employees of Steak & Ale of Texas, Inc., not employees of Metromedia. The Comptroller offered no evidence that Metromedia was indebted to employees of Steak & Ale of Texas who failed to claim wages for more than three years.
Therefore, the Court determined that the judgment against S & A Restaurant Corporation and Steak & Ale of Texas is void, and because Metromedia is not a holder of the unclaimed property, it cannot be held liable either.