In a case with major implications for businesses operating in Texas, the Supreme Court of Texas has affirmed the Texas Attorney General's authority to examine corporate records to investigate potential legal violations.
Background
The Texas Right to Examine (RTE) Statute authorizes the Attorney General to demand access to corporate records from any business registered to operate in the state. See Tex. Bus. Orgs. Code § 12.152. This means any business formally registered in Texas may be subject to a request for records to determine whether the business "has been or is engaged in acts or conduct in violation of" Texas law. Tex. Bus. Orgs. Code § 12.153. Failure to comply may result in criminal penalties and revocation of the right to do business in Texas. See id. § 12.155. Importantly, this statute applies even to records located in another state.
In Paxton v. Annunciation House, the Attorney General issued a request to inspect the records of Annunciation House, a nonprofit organization, in connection with an investigation into whether it was unlawfully harboring undocumented immigrants. Annunciation House challenged the constitutionality of the RTE Statute, and the trial court issued an injunction, holding that the statute was facially unconstitutional because it required "immediate" compliance without providing for precompliance judicial review.
Texas Supreme Court Upholds the Statute
On May 30, 2025, the Supreme Court of Texas reversed the trial court, holding that the RTE Statute does not violate the Fourth Amendment. The court distinguished the statute from the ordinance at issue in the seminal and controlling case, City of Los Angeles v. Patel, 576 US 409 (2015). In the Patel case, the challenged ordinance provided that hotel records "shall be made available to any officer of the Los Angeles Police Department for inspection" and that refusal to comply would result in "arrest[] on the spot." The Supreme Court held that because there was no opportunity whatsoever for precompliance review, the ordinance was facially unconstitutional under the Fourth Amendment.
Unlike in Patel, the Texas Attorney General argued—and the Supreme Court of Texas agreed—that the term "immediately" in the RTE Statute should be interpreted to mean "expeditiously," not "instantaneously." The court held that the statute does not foreclose precompliance review and that such review is available through a motion for protective order under Texas Rule of Civil Procedure 176.6(e). That rule allows a person subject to a subpoena to seek judicial review before the time specified for compliance.
Related Federal Case: Spirit Aerosystems v. Paxton
In a separate federal case, Spirit Aerosystems v. Paxton, the US District Court for the Western District of Texas held that the RTE Statute is facially unconstitutional. The case arose after the Attorney General issued a request to examine Spirit's records following a high-profile aircraft incident. Spirit challenged the request, arguing that the statute's "immediate" compliance requirement, combined with the threat of penalties, violated the Fourth Amendment.
The district court agreed, but the case is now on appeal before the Fifth Circuit. During oral argument, the panel appeared focused on the meaning of "immediately." The Attorney General's briefing included an Erie argument, asserting that Texas courts have not interpreted "immediately" to preclude precompliance review. With the Texas Supreme Court now having definitively ruled that "immediately" still means that precompliance review is available under Rule 176.6(e), it is likely that the Fifth Circuit will reverse the district court's decision.
Key Implications and Takeaways
- The Texas Supreme Court reaffirmed that the Attorney General has constitutional and statutory authority to examine the records of corporations operating in Texas under the RTE Statute.
- The court clarified that businesses may seek precompliance judicial review of a records request, including by filing a motion for protective order under Rule 176.6(e). This provides a clear procedural avenue for businesses to challenge these requests. Before Annunciation House, it was not clear what avenue a business might take to resist a request issued under the RTE Statute.
- The court emphasized that while the Attorney General has discretion in setting compliance timelines, the statute does not require instantaneous compliance. Businesses must be given a reasonable opportunity to respond. Such an analysis will likely depend on the facts and circumstances surrounding each request.
Although the Fifth Circuit has not yet ruled in Spirit Aerosystems, the Texas Supreme Court's interpretation of the RTE Statute is likely to dictate the outcome. Until then, businesses should be aware of their rights and obligations under the statute and the current conflict in the law's interpretation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
