On February 25th, the Supreme Court of Texas issued a new ruling that clarifies the acceptable methods of service for out-of-state financial institutions.
Previously, there was some uncertainty as to whether or not a financial institution could be served through the Texas Secretary of State, rather than through the institution’s registered agent. In U.S. Bank Nat’l v. Moss, the Texas Supreme Court held that service through the Secretary of State could not be considered service through a “registered agent” as required by the Texas Civil Practice and Remedies Code.
As such, out-of-state financial institutions with a registered agent in Texas must be served through their registered agent in order for service of process to be considered valid.
The legal backdrop
Out-of-state fiduciaries are required by Section 505.004 of the Texas Estates Code to appoint the Secretary of State as their agent for service of process. However, Section 17.028 of the Texas Civil Practice and Remedies Code specifies that service of process must be completed through these entities’ registered agents. In the past, this has generated some confusion since it was unclear whether service through the Secretary of State’s Office qualified as service through the institution’s registered agent.
This lack of clarity also encouraged some individuals to seek default judgments against mortgage holders by effectuating service through the Secretary of State rather than the institution’s registered agent. Since the financial institution in question was less likely to receive timely notification of service when served through the Secretary of State’s Office, service through this method allowed some borrowers to obtain a default judgment and clear mortgage liens before the financial institution had been properly notified of service.
This often forced the financial institutions involved to pursue costly litigation in order to reverse the default judgment against them.
U.S. Bank Nat’l v. Moss
In U.S. Bank Nat’l Ass’n, as Residential Asset Mortgage Products, Inc., Mortgage Asset-Backed Pass-Through Certificates Series 2005-EFC2 v. Moss, Moss attempted to prevent foreclosure on his home by suing U.S. Bank. Because U.S. Bank is an out-of-state corporation, Moss effectuated service through the Texas Secretary of State’s Office under the Texas Estates Code.
However, U.S. Bank had not updated its designation of the person the Secretary of State should forward served documents to. As a result, U.S. Bank never received notification of service, and Moss obtained a default judgment against them. U.S. Bank then attempted to have the default judgment set aside, claiming it hadn’t been properly served through its registered agent, as required by the Texas Civil Practice and Remedies Code.
Initially, U.S. Bank’s argument was rejected by both the trial court and the Dallas Court of Appeals. In both cases, the courts held that service through the Secretary of State was acceptable under the Civil Practice and Remedies Code.
The language at issue
Specifically, the courts accepted Moss’s argument regarding the language used in Civil Practice and Remedies Code Section 17.028. This section states that “citation may be served on a financial institution” by either “serving the registered agent of the financial institution” or, if the institution doesn’t have a registered agent, by “serving the president or a branch manager at any office located in this state”.
Moss had argued that the use of the word “may” in this passage indicated that this was a permissible method of service but that service through the registered agent wasn’t mandatory. Also at issue was whether or not the Secretary of State could be considered U.S. Bank’s “registered agent” under the Civil Practice and Remedies Code.
The Texas Supreme Court weighs in
The Supreme Court of Texas ultimately reversed the decision of the lower courts.
Although they acknowledged the use of the word “may” in the Civil Practice and Remedies Code, the Supreme Court held that this word was meant to indicate the choice between the two following methods of service (i.e., service through the institution’s registered agent or service through “the president or a branch manager at any office located in this state”). As such, the court held that the methods of service outlined in Section 17.028 were in fact mandatory when serving out-of-state financial institutions.
The Supreme Court also concluded that the Secretary of State could not be considered U.S. Bank’s registered agent. Specifically, the Court held that under the state’s Business Organizations Code, the Texas Secretary of State is not the same as an out-of-state financial institution’s “registered agent.” As such, service through the Secretary of State doesn’t satisfy the requirements for service laid out in Section 17.028 of the Civil Practice and Remedies Code.
This ruling makes it clear that out-of-state financial institutions that have a registered agent in Texas must be served through their registered agent and not through the Secretary of State.
In the future, this legal precedent will likely help to protect out-of-state banks from similar default judgments against them. However, it’s worth noting that service of process through the Secretary of State may still be permissible for out-of-state financial institutions that don’t have a registered agent or offices in the state.
Need to serve documents in Texas? Trust DGR Legal
As U.S. Bank Nat’l v. Moss demonstrates, the laws governing service of process are often nuanced and complex, especially when service involves individuals or entities outside the state (or the country) of service. That’s why working with an experienced process server can be key.
DGR Legal has years of experience successfully effectuating service throughout the U.S. Our knowledgeable process servers keep up with the latest developments in state, federal, and international law so we can get the job done right—no matter where you need to have documents served.
If you have further questions or need help serving documents in Texas (or any other state), contact us. We can ensure service is effectuated efficiently and in accordance with all local laws and regulations.