106 State v. Triax Oil and Gas, Inc.

Monday, September 7th, 2015

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
State v. Triax Oil and Gas, Inc., 966 S.W.2d 123 (Tex. App. – Austin 1998, no pet.) holds corporate officers individually liable for their company’s failure to properly plug and abandon wells. The Railroad Commission sent notice of a hearing to Triax in December 1993. A hearing was held in January 1993 at which Triax failed to appear. The corporate charter of Triax was forfeited for failure to file a franchise tax report in February 1993. The Commission eventually imposed administrative penalties and incurred costs by expending state funds to plug Triax wells. In September 1995, the state sued to enforce the administrative penalties, to recover plugging costs and for additional civil penalties for failure to abide by the order, court costs and attorney’s fees. The state also sued under the Tax Code to hold the directors individually liable for all liabilities of Triax due to the forfeiture of the corporate charter.
 
The trial court apparently believed that the proceeding before the Commission imposing the administrative penalties was not final because the directors allegedly never received notice that the motion for rehearing was overruled.
 
Held: Reversed. The motion for rehearing was overruled by operation of law, regardless of whether the directors did or did not receive notice. Therefore, the Commission order was final, and judgment for administrative fees was rendered. The state’s claims for civil penalties, attorney’s fees, court costs, and the recovery of reasonable plugging expenses were remanded because the state had been denied the opportunity to present its case by the trial court’s take nothing judgment. The Court also held that the Commission was under no duty to accept well equipment allegedly tendered by the directors as an offset against the plugging costs.
 
This case is significant because it illustrates the risk to officers and directors in permitting the forfeiture of a corporate charter by failing to pay franchise taxes. Even for a company in trouble, paying those taxes must be given a high priority by management, or management will pay. The case is also of interest because it establishes that the Commission is under no duty to accept well equipment, and (at least until accepted) the Commission cannot be liable for negligence in failing to exercise control over the equipment.