BankDirect Capital Finance v. Plasma Fab, LLC: SCOTX on Mandates, Manners, and Equitable Itches

           When will courts read a substantial compliance exception into a statute? The Texas Supreme Court recently took a hard-line stance against reading such an exception into a statute that does not, itself, include a substantial compliance exception.

            In BankDirect Capital Finance v. Plasma Fab, LLC, 60 Tex. Sup. J. 892, No. 15-0635 (Tex. 2017), the Court considered the issue whether BankDirect improperly cancelled an insurance policy it financed for Plasma Lab. Plasma Lab had defaulted on the premium payments owed to BankDirect. Pursuant to the Texas Premium Finance Act, BankDirect sent Plasma Lab a notice of intent to cancel the policy. The statute required that such notice provide the defaulting party ten days from the date the notice is mailed to cure. Although BankDirect set out a ten-day period for Plasma Lab to cure, it sent the notice one day after the date listed on the notice, thereby providing Plasma Lab nine days from the date the notice was mailed to cure. Plasma Lab did not cure the default and BankDirect subsequently cancelled the policy.

            Four days after the deadline to cure the default, a fire destroyed an apartment where some of Plasma Lab’s employees worked. Plasma Lab paid the default amount the next day, but the policy had already terminated, so it lacked insurance coverage for the apartment fire. Plasma Lab was sued for injuries and damages arising from the fire, which resulted in a $6 million judgment against Plasma Lab. Plasma Lab then sued BankDirect and Scottsdale Insurance Company for breach of contract and related claims.

            The majority opinion made clear that the statutory text itself resolved the case. No “substantial compliance” exception is stated in the relevant Act. And the facts demonstrate that BankDirect did not comply with the required notice provision. Therefore, because BankDirect provided only a nine day cure period instead of the required ten, BankDirect improperly terminated Plasma Lab’s insurance policy. The majority opinion explained that the Court’s role in interpreting a statute is to resolve the issue by the text itself:

We must resist the interpretive free-for-all that can ensue when courts depart from statutory text to mine extrinsic clues prone to contrivance. The Code Construction Act offers a buffet of interpretive options, but to our credit, we have often been picky eaters, opting instead for a simpler, less manipulative principle: Clear text equals controlling text.

. . .

“Substantial compliance” may scratch an equitable itch, but law, without equity, though hard and disagreeable, is much more desirable for the public good, than equity without law: which would make every judge a legislator, and introduce most infinite confusion.

            A closer look at the majority opinion, however, reveals a more nuanced judicial philosophy or position. As an example, the BankDirect majority cites to Roccaforte v. Jefferson County, 341 S.W.3d 919 (Tex. 2011), where the Texas Supreme Court interpreted a “substantial compliance,” as opposed to full compliance, requirement in a statute. Rather than just say that the Court should not have ruled the way it did, the majority attempted to distinguish Roccaforte.

            In Roccaforte, the issue was whether the plaintiff failed to comply with a pre-suit notice requirement in the Local Government Code, which required notice within a prescribed time and a prescribed manner—by registered or certified mail. The plaintiff hand-delivered notice within the prescribed time.  The Roccaforte Court held that the statute at issue requires only substantial compliance, and hand-delivery accomplished the underlying purpose of the statute. The BankDirect Court reasoned that Roccaforte is distinguishable because, unlike with the plaintiff in BankDirect, Roccaforte satisfied the time limit, which the Court reasoned was a mandate, even though Roccaforte did not satisfy the delivery method, which the Court reasoned only concerned the “manner” of notice.

            But the BankDirect majority’s explanation here is incomplete. For one thing, in just one paragraph earlier, the majority provided an extensive list of statutes in which the legislature had written in a substantial compliance rule, concluding that “‘[s]ubstantial compliance’ needs no judicial assist. . . When the Legislature desires a not-so-bright line forgiving noncompliance, it knows what to say and how to say it.” The statute in Roccaforte, however, did not include an express substantial compliance clause.

            The BankDirect majority’s distinction between a mandate and a manner, then, was expected to do all of the work. What the majority never answered is why the time-limit of delivery is a mandate but the method of delivery is only a manner?  And, what is the difference when it comes to a statute?  And, why does that difference matter?  To answer these questions requires the majority to do exactly what it says it should not do: “scratch an equitable itch.”

            The majority attempted to distinguish a time-limit from other types of statutory requirements by quoting to a line in Edwards Aquifer Authority v. Chemical Lime, Ltd., 291 S.W.3d 392, 405 (Tex. 2009):  “A deadline is not something one can substantially comply with.” The dissent quickly dispensed with the majority’s attempted analogy to Chemical Lime by pointing out that the date there was a deadline for the filing of permit applications. The time-period at issue in BankDirect was a time-frame, not necessarily a deadline, and the time-frame did not provide a minimum notice period to the borrower, Plasma Lab. So, if the mail is extremely slow, because of a holiday or some other reason, the borrower may only have a couple of days to cure, even if the notice was sent ten days before the cure date. Substantial compliance is possible under these circumstances. Also, though not addressed by either the majority or dissenting opinions, it is not at all clear why “deadlines” are not something one can substantially comply with. There are many hard-and-fast deadlines in the Texas Rules of Civil Procedure that are easily overcome by a showing of good cause or lack of unfair surprise or prejudice, and these are hard to distinguish from a substantial compliance rule. (One might be tempted to point to the difference between procedure and substance, but this “difference” is one without a distinction in many instances).

            The dissenting opinion offers a contrasting view of judicial statutory interpretation. The dissent pointed to the Code Construction Act, which provides courts guidance on how to interpret certain words and phrases in statutes. See Tex. Gov’t Code § 311.016. The dissent also pointed out that the Legislature has made clear in the Texas Government Code that it “intends for statutes to have a just and reasonable result,” and that courts “may consider, among other matters, the object sought to be obtained and the consequences of a particular construction.”Id. at § 311.021(3).

            With a view toward a just and reasonable result that fulfills the object to be obtained by the statute, the dissent reasoned that “substantial compliance” within the ten-day time frame was all the Act required. The Act at issue did not assess a consequence for failure to comply with the time frame, and the Court previously held that the purpose of similar statutes favored allowing a party to cure and comply. The purpose of the Premium Finance Act is to strike “a balance between protecting the rights of borrowers and premium finance lenders.” And, since the time-frame in the Act “links the notice’s time requirement to the lender’s action in mailing the notice instead of the borrower’s receipt of the notice,” a buyer is not afforded a fixed amount of time to cure the default after receiving notice. So long as the buyer is provided notice of a specific cancellation date with some time to cure, substantial compliance is possible with the Act and should be read into the statute.

            The Majority, on the other hand, chided the dissent’s position:  “The dissent favors a ‘just and reasonable’ outcome. Respectfully, our role is to be neither generous nor parsimonious. Statutes that impose timelines naturally burden those who miss them. We must resist the temptation to alter a statute to realign perceived inequities, particularly when the Legislature has proven itself adept at enacting lenient substantial compliance’ language when it wishes. Our text-centric approach abjures the desire to cushion statutory strictness.”

            The upshot of the BankDirect opinion is that absolute compliance with a time limit in a statute is the best option when the statute does not specifically allow substantial compliance, even if the statute does not state a consequence for failure to comply with that time limit. Bottom line: Mind your manners and follow your mandates.

You Can’t Have Your Bathroom And Use It Too!

“The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and with indignation that sudden changes and legislative interferences in cases affecting personal rights become jobs in the hands of enterprising and influential speculators and snares to the more industrious and less informed part of the community.”–James Madison, Federalist No. 44.

            In case any doubt to the contrary existed, Dan Patrick confirmed, by threat of special legislative session, that bathroom integrity is among the most important policy issues in Texas . . . at least for now. Aimed to combat the threat of discomfort that genital-appropriate-students may experience by sharing a bathroom with persons dissimilarly endowed, and the more speculative, and easily controllable, threat of rogue perverts using gender identity as a voyeuristic ploy, the Bathroom Bill promises bathroom integrity to genital-appropriate males and females. For those non-genital-appropriate males and females, the bill promises that they can find the nearest stand alone potty, including using a teacher’s bathroom, to relieve themselves in quiet and solitary confinement.    

            Whatever the Bathroom Bill proposes to gain in bathroom integrity or security, however, it loses in human dignity and legal equality. On the integrity side, the bill treats transgendered persons as outcasts, as opposed to human beings and citizens entitled to the same dignity and respect afforded every other citizen. On the security side, the bill does greater direct and certain harm to transgendered students than it does protecting students generally. As for legal equality, the bill targets transgendered students and banishes them from traditional public school restrooms, which may constitute an unconstitutional bill of attainder.

            A.       Bathroom Integrity and Equal Dignity and Respect

            Most people can identify or sympathize with proponents of rules that clearly segregate restrooms according to gender. There is a sense of comfort that comes with gender-segregated restrooms for some people. This comfort may stem primarily from being surrounded by what is familiar.

When it comes to private establishments and private individuals, as opposed to government buildings and public figures, the decision to accommodate patrons’ comfort might not sit well with transgendered patrons, and might even invite rebuke. But the sting of being relegated to a separate restroom from all other males and females can be met with an equal sting to the private establishment by taking one’s business elsewhere. One could also stage a boycott of the private establishment. Lost profits have a way of motivating a change in policy.   

When the State, on the other hand, attempts to accommodate the comfort of one group of citizens over another, with respect to restrooms, or anything else for that matter, the sting of being relegated by law to a separate facility from all other males and females cannot be matched against the government. One cannot just take his or her business elsewhere. Sure, one might protest or boycott, but unlike with private business, where lost profits motivate changed policies, government does not experience lost profits, at least not in the same way as a private business—private businesses cannot force people to purchase or use their goods or services like government can. Further, even if one were to enlist others to boycott the government, their efforts would prove futile unless they first engaged in a life-long project of dismembering gerrymandered districts and enacting public policies that combat political pathologies. Lastly, unlike with a private business, a public pronouncement by the State that one group of citizens is too different to join other males or females is an official stigma upon transgendered students—one that will follow them throughout the State.

In Obergefell et al. v. Hodges, Director, Ohio Department of Health, et al., the United States Supreme Court interpreted the Due Process Clause of the Fourteenth Amendment to the United States Constitution to extend the protection of certain fundamental liberties—“life, liberty, and “property”—to “certain personal choices central to individual dignity and autonomy, including intimate choices that define personal identity and beliefs.” Throughout the opinion, Justice Kennedy intimately tied human dignity to legal impositions. From the law of coverture—a legal doctrine that treated a married, heterosexual couple as a single, male-centric entity—to criminal laws against homosexual intimacy, Justice Kennedy submitted that the legal stance toward women and homosexuals informed the way other citizens viewed them, and how they (women and homosexuals) even viewed themselves, i.e., as something less than men, in the case of women, or less than everyone else, in the case of homosexuals.

            At the heart of the Obergefell opinion lies a compelling moral minimum owed by the State to each person within its jurisdiction: every citizen is entitled to the same dignity and respect afforded every other citizen by those who purport to govern them. 

                        Pardon the Interruption (an aside)

            Nothing that has been said so far should be read to mean that no limits whatsoever could be placed on what is commonly referred to as “identity politics.” Consider the case of Rachel Dolezal, for example. After she was outed as a white-woman, she announced that she identified as a black woman. Taking her identity seriously may mean that others recognize her for who she is, which includes how she identifies herself. But, does this mean that she should also benefit from Affirmative Action policies that were designed to ameliorate the effects of past injustices inflicted on black Americans? I think most people would answer no, and not without good reason.

To answer no, though, is to admit public limits to aspects of personal identification. The question becomes, then, whether admitting any public limits to personal identification also admits limits to the scope of one’s personal identity? If dignity is tied, in part, to how one identifies his or herself, then one might think government regulations which prohibit someone like Rachel Dolezal from enjoying the full protections and benefits afforded other people with whom she identifies in every respect would be an affront to her dignity and constitute unequal treatment. Practical politics takes over at this point—a line must be drawn in order to ensure Affirmative Action policies serve those persons whose historical connection to systematic and pervasive discrimination has stunted or stalled their economic, social, and political well being. 

Though the issue requires additional discussion and argumentation, which this blog alone cannot facilitate, I submit that transgender-identity issues are different from the Rachel Dolezal example in very significant ways. First, the reasons for excluding Rachel Dolezal from taking advantage of Affirmative Action policies center on historical political choices and actions which negatively impacted a group of people. But the reasons for excluding transgendered persons from using the restroom assigned to the gender with which they identify center on genetic luck—being born with a penis or vagina. And, second, the need to preserve a limited resource for the group for whom it was intended is not present with bathrooms.  

Before moving on, I will leave you with this tougher example: What about Caitlyn Jenner? Should a transgendered person who identifies as a female be able to take advantage of public policies designed to ameliorate past discrimination against women? The gender category of Women is race neutral and largely a matter of genetic luck. If so, why? If not, why? How does this inform your stance on the Bathroom Bill, if at all?

            B.       Bathroom Security and Personal Insecurity

Another reason in support of the Bathroom Bill centered on bathroom security. Some public officials preyed on public fear by suggesting that men might storm into female-only restrooms to objectify or even rape women if transgendered persons are allowed to use the gender-assigned restroom with which they identify.

There are three (likely more) reasons why the security argument fails on its face. First, the security issue does not address a problem with transgendered persons, but with rogue perverts or criminals taking advantage of a restroom policy. Second, and related to the first, to address the rogue pervert or criminal issue does not require a law which prohibits transgendered persons from using certain restrooms; in other words, there are less restrictive alternatives. Public schools are well equipped to have procedural and security checks in place to minimize the risk or threat of rogue perverts and criminals. Some such procedural checks may include documentation from a transgendered student and his or her parent with the student’s gender identification, coupled with other documentary proof—medical or otherwise—so that school faculty and staff will be able to identify those students who actually should and should not be in certain restrooms. 

Third, the Legislature does not have enough statistical data or proof to demonstrate a real risk to bathroom security by allowing transgendered students to use the gender-assigned restroom with which they identify. We should be very wary about allowing the Legislature to create a problem out of thin air, for fear that one day that problem may be with you and you may have no recourse. This brings us to the final issue.

            C.       Bills of Attainder

             

            The Bathroom Bill will likely be met with litigation. Most people should be or will be familiar with the equal protection legal arguments that will arise (one such argument was raised above in the Obergefell discussion). The bill might also constitute an unconstitutional Bill of Attainder, though the argument is not as direct as equal protection.

            Article 1, sections 9 and 10, of the United States Constitution, prohibit federal and state governments, respectively, from enacting bills of attainder. A bill of attainder is an official rule that directs punishment of a particular person or group. Alexander Hamilton best articulated the concerns addressed by the prohibition against bills of attainder:

“Nothing is more common than for a free people, in times of heat and violence, to gratify momentary passions by letting into the government principles and precedents which afterwards prove fatal to themselves. Of this kind is the doctrine of disqualification, disfranchisement, and banishment by acts of the legislature. The dangerous consequences of this power are manifest. If the legislature . . . may banish at discretion all those whom particular circumstances render obnoxious, without hearing or trial, no man can be safe, nor know when he may be the innocent victim of a prevailing faction. The name of liberty applied to such a government would be a mockery of common sense.”

The United States Supreme Court interpreted the prohibition against bills of attainder to apply to “legislative acts, no matter what their form, that apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial.” United States v. Lovett, 328 U.S. 303, 315 (1946). The Court also broadly construes what constitutes “punishment” within the prohibition’s parameters. As far back as 1810, the Court exclaimed that a “bill of attainder may affect the life of an individual, or may confiscate property, or may do both.” Fletcher v. Peck, 10 U.S. 87, 138 (1810). More recently, the Court made clear that punishment includes “imprisonment, banishment, and the punitive confiscation of property by the sovereign” as well as “legislative enactment[s] barring designated individuals or groups from participation in specified employments or vocations, a mode of punishment commonly employed against those legislatively banded as disloyal.” Nixon v. Administrator of General Services, 433 U.S. 425, 474 (1977).

Now, the legislation typically must identify a particular person or easily ascertainable group. For example, in United States v. Brown, 381 U.S. 437 (1965), the Supreme Court held unconstitutional a law that prohibited Communist Party members from serving as labor union officers or managers. The Court reasoned that the law constituted a bill of attainder, as it identified specific individuals, Communist Party members, and punished them by excluding them from holding union positions.

But if the legislation reads as a general prohibition that does not specify any individual(s) or group, the question arises whether courts should look beyond the words of the legislation to the underlying intent behind the bill. Courts have shown themselves more and more willing to look beyond the text when it comes to discriminatory intent.

So, is the Bathroom Bill, once enacted, a bill of attainder? The bill is directed at “a student who does not wish to use the facilities designated for use or commonly used by persons of the student’s biological sex.” This language is likely sufficient to demonstrate that it is directed to transgendered students specifically. Even if neutrally read, there is enough legislative history, courtesy of Dan Patrick and others, to show that the bill is directed at transgendered students. And, the bill targets a specific subset (students who do not wish to use the restroom that corresponds to his or her biological sex) of a general group (students).

Will the legislative act punish transgendered students? Broadly construing “punishment,” the bill excludes transgendered students from using restrooms openly available to all other students and relegates transgendered students to separate facilities. This obviously negatively “affects the life” of transgendered students, and excluding the student from designated student facilities on the basis of the transgendered students’ identity may comfortably sit within the definition of punishment for purposes of the prohibition against bills of attainder.

Recall that one of the underlying rationales behind the Bathroom Bill was to ensure bathroom security. Taking this purpose seriously, the bill “punishes,” without a trial, transgendered students for something that no transgendered student has done. Criminal laws are already in place to punish any person, regardless of race, gender, sexuality, religion, or political affiliation, who sexually assaults another person. Should not those laws coupled with subsequent punishment following a trial be sufficient to deter the conduct the Legislature purports to be concerned with regarding the Bathroom Bill? Also, as argued above, there are less restrictive alternatives available to public schools to minimize the risks or threats raised by the Legislature.

Final Thoughts

Mindful that there are no easy answers to many of the issues raised by the Bathroom Bill, and certainly no answer that will satisfy everyone, everyone should at minimum seriously question whether a statewide prohibition is the appropriate response to a problem that, by all accounts, is largely hypothetical. Granted, there are serious concerns raised by proponents of the Bathroom Bill that cannot lightly be dismissed. The comfort and privacy concerns of female students whose gender corresponds to their biological sex are valid concerns. And, the normative stance and mores of a given community deserve respectful attention. These concerns should be addressed by each particular school district, because they are best equipped to address the specific concerns of the local community and best equipped to address the needs of the students with whom school faculty and staff have direct contact and intimate knowledge. 

An Amiably Disagreeable Spirit

Disagreement does not necessarily have to be overcome. It may remain an important and constitutive feature of our relations to others, and also be seen as something that is merely to be expected in the light of the best explanations we have of how such disagreement arises. –Bernard Williams, “Ethics and the Limits of Philosophy”

Social media makes it easier than ever to surround one’s self with like-minded “friends.” Impersonal electronic-interfaces allow one to avoid discomfort, regret, or disdain that sometimes arises in face-to-face interactions and which counter an impulse to publicly renounce another person. One reason for this homogenous impulse is that some people view disagreement as a bad thing, or just uncomfortable. Why make yourself uncomfortable if you can avoid it, right? Some people also view disagreement as unnecessary—There is a right answer, mine, and a wrong answer, yours.

        

Disagreement, though, is inevitable in any diverse society. When people from different socio-economic backgrounds, with different ethnic, racial, or cultural identifications, or different world-views and beliefs interact, they will inevitably disagree when it comes to certain courses of action, whether that disagreement is on moral, religious, or pragmatic grounds. Sometimes these disagreements may cause discomfort, but these disagreements are beneficial to every participant. Disagreement is the springboard for inquiry and exploration, both of which promote ingenuity and innovation.

Disagreement is most important when opposing sides feel equally strong about their positions and an equal desire to vindicate them. The value of disagreement is most evident when disagreements matter most. Disagreements matter most when public policy is at issue, because public policies generally require concerted or common courses of action—everyone needs to chip in, so to speak. And it is this fact—that everyone must chip in to make the concerted course of action work—that makes disagreements valuable. Disagreement over public policy provides an opportunity for every person to see the other as both an autonomous being, equally endowed with the capacity to reason, and necessary to achieve common endeavors. So long as every person’s cooperation is necessary to achieve common ends, no one should every be treated as expendable in the discussion, though, at some point, some decision must be made and some positions may lose out altogether.

A lot may be at stake sometimes when it comes to public policy. Limitations to freedom may be at stake, for example, and very often public policies limit one aspect of freedom or another. But, as Karl Popper astutely noted, “the important and difficult question of the limitations of freedom cannot be solved by a cut and dried formula. And the fact that there will always be borderline cases must be welcomed, for without the stimulus of political problems and political struggles of this kind, the citizens’ readiness to fight for their freedom would soon disappear, and with it, their freedom.” 

           Let disagreement be the beginning, never the end, of a conversation. Enrich your life with the collective wisdom of an assorted many, rather than an unvaried few. Agree to disagree when, due to an intractable impasse, you must; disagree to agree when it is necessary to keep the engines of thought running; that is, maintain an amiably disagreeable spirit.