© 2017 by Kevin Stewart

SCOTX: Statutory Deadlines Will Be Strictly Construed

May 16, 2017

     On May 12th, the Texas Supreme Court released its opinion in BankDirect Capital Finance v. Plasma Fab. Back in 2008, Plasma Fab obtained liability insurance financed through BankDirect. Pursuant to their agreement, BankDirect could cancel the policy only after it mailed notice in accordance with Section 651.161 of the Texas Premium Finance Act. The statute requires notice to include a time by which the default must be cured, which "may not be earlier than the 10th day after the date the notice is mailed." In this case, BankDirect sent a notice to cancel coverage to Plasma Fab. Plasma Fab did not pay within 10 days, so BankDirect sent a cancellation notice. This had happened two times in the past, and BankDirect had always reinstated the policy after Plasma Fab's delinquent payment. A few days after the cancellation notice, an apartment complex that Plasma Fab owned burned down. Plasma Fab then tried to pay the delinquent premium and collect for the damage.

     Plasma Fab had decent arguments in its favor, which Justice Johnson and Chief Justice Hecht described in their dissent. The mandatory/permissive canon of statutory construction (Handbook §3.4) says that mandatory words—shall, must, and may not—impose a duty. However, the Texas Supreme Court has acknowledged an exception when a deadline is not followed by a penalty or words restraining the act after the deadline. Because there were no consequences for noncompliance, the dissent argued, the court may "look beyond the plain language for assistance." The dissent looked to Sections 311.021 and 311.023 of the Code Construction Act, which ask the courts to interpret statutes in a way that produces a just and reasonable result that fulfills the object to be obtained by the statute. They determined that "substantial compliance" with the deadline, which Plasma Fab had satisfied, was such a result.

     The majority—Justices Willett, Green, Lehrman, Boyd, Devine, and Brown—rejected the old precedent that provided an exception to the mandatory/permissive canon in favor of the supremacy-of-text principle (Handbook §1.1). The principle requires an interpreter to strictly apply the language of the statute when it is unambiguous. The 10-day deadline was unambiguous. Further, the legislature had added "substantial compliance" language in a number of other statutes in the code, but did not add it to this one. Therefore, strict compliance with the deadline is required. The majority reasoned, "plain language disallows ad-libbing, a cardinal principle we have reaffirmed regularly."

     This case is important because it shows that a majority of the court will now strictly construe deadlines, even if the deadline is not followed by a consequence for noncompliance. Nevertheless, when drafting a statute, including a consequence for noncompliance could deter lawsuits. Likewise, if you want the deadline to be loosely enforced, include a substantial compliance clause, such as: "If the converting company in good faith substantially complies with the notice requirements of this chapter, the company’s failure to send a member the required notice does not impair the validity of an action taken under this chapter."

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