AUSTIN - Texas Attorney General Ken Paxton's defense of a law that allows him to examine corporate records is unconvincing, one of his targets says in a lawsuit that could change the way investigations are handled in the state.
Spirit Aerosystems, which makes fuselages for Boeing 737s, filed the latest document in its ongoing battle with Paxton over the legality of the state's right-to-examine law. U.S. Magistrate Judge Mark Lane has already recommended Spirit be granted relief from Paxton's probe because the RTE law is unfair to companies.
Paxton objected to Lane's findings on Nov. 4 as District Judge Andrew Austin decides whether or not to adopt them. Paxton says Lane's recommendation would "needlessly" put an end to the AG's power to demand corporate records under the RTE law, which has been on the books for more than 100 years.
Lane says the RTE law doesn't allow targets for presenting objections to demands to a neutral decisionmaker in a pre-compliance review.
"(I)t is clear that the RTE Statute contains a constitutional defect in its plain language," Lane wrote.
"The RTE Statute provides no opportunity to seek pre-compliance review on the reasonableness of a particular request, and it explicitly prevents such opportunity through its temporal requirements and grant of unlimited power to the Attorney General..."
Spirit's Nov. 18 response to Paxton's objections described a recent hearing before Lane, at which Paxton's counsel was asked why he didn't use an administrative subpoena instead of issuing an RTE demand.
Administrative subpoenas "don't necessarily provide the scope that the RTE statute provides," Paxton's counsel said. Spirit says the power provided to the AG by the RTE statute is too great.
"If an entity fails to immediately comply with the Attorney General's demand, the entity's managerial officials can be criminally prosecuted for a misdemeanor offense, and the Attorney General's staff can arrest those officials on the spot," attorneys for the company wrote.
"In other words, a Request to Examine recipient and its managerial officials are, at the moment of receipt, put to the choice of complying with the request or violating the statutory 'immediately permit' requirement."
And exemptions to the pre-compliance review requirement regarding closely regulated industries don't apply, Spirit says, as there is no Texas law that regulates the commercial aircraft manufacturing industry.
Earlier this year, Paxton opened his investigation of Spirit following disasters with Boeing's 737 MAX planes. Two crashes in 2018 and 2019 killed 346 people, then in January of this year the door blew out of one that led the Federal Aviation Administration to ground all MAX planes with similar configurations.
Spirit argues Paxton has no jurisdiction over it. The company's headquarters are out of state and Boeing malfunctions occurred in California and overseas.
Paxton's claim that Texans are regular passengers on Boeing planes "is meritless," Spirit says.
Key to the case is the application of a 2015 U.S. Supreme Court opinion, Los Angeles v. Patel. That case concerned Los Angeles' requirement for hotel operators to record and keep information about their guests for a 90-day period.
Those records were to be made available to police for inspection. SCOTUS and the Ninth Circuit found those inspections are Fourth Amendment searches and were unreasonable because hotels could be punished for failing to turn records over without an opportunity for pre-compliance review.
"Unlike in Patel, an RTE subpoena recipient can always seek a protective order under the Texas Rules of Civil Procedure," Paxton's office wrote.
"Moreover, unlike in Patel, Texas courts entertain equitable claims for an injunction in this setting. The RTE statute does not itself explicitly spell out these options, but that does not mean pre-compliance review is unavailable and it does not make the statute facially unconstitutional."
He issued his RTE to Spirit on March 28, telling Spirit, its board and its officers it "has a continuing duty" to provide records while he investigates.
The RTE mentions a shareholder class action lawsuit against Spirit in New York federal court that followed a drop in the company's value once Boeing announced it would halt deliveries of 737 MAX planes because of a supplier quality problem linked to Spirit.
The company's value fell nearly 21% to $28.2 per share on April 14. The presiding judge is weighing Spirit's motion to dismiss that case.