Pecos County Appraisal District and Kinder Morgan Production Company, LLC v. Iraan-Sheffield Independent School District ( 2023 )

Supreme Court of Texas
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No. 22-0313
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Pecos County Appraisal District and
Kinder Morgan Production Company, LLC,
Petitioners,
v.
Iraan-Sheffield Independent School District,
Respondent
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Eighth District of Texas
═══════════════════════════════════════
Argued February 2, 2023
JUSTICE BLACKLOCK delivered the opinion of the Court.
JUSTICE BLAND did not participate in the decision.
“Taxation shall be equal and uniform.” TEX. CONST. art. VIII,
§ 1(a). Taxable property “shall be taxed in proportion to its value, which
shall be ascertained as may be provided by law.” Id. § 1(b). In
furtherance of these constitutional commands, the Legislature has
“provided by law” a detailed and comprehensive statutory regime
governing the ascertainment of the value of taxable property. The
centerpieces of that regime are the appraisal districts, which are
“established in each county” and “responsible for appraising property”
for taxation based on neutral principles of property valuation. TEX. TAX
CODE §§ 6.01(a), (b); 23.01(a), (b), (f), (h); 23.0101–.013.
Appraisal districts may employ outside firms to assist with
appraisals, but they may not pay such firms a fee that “is contingent on
the amount of or increase in appraised, assessed, or taxable value of
property appraised.” Id. § 25.01(b). In this way, and in others as well,
the Legislature has taken steps to insulate the appraisal process from
the “pernicious incentives to maximize recovery” that are created when
the personal income of those in a position to influence our tax system is
linked to higher taxation. Kinder Morgan SACROC, LP v. Scurry
County, 622 S.W.3d 835, 843 (Tex. 2021).
Today’s case asks whether a school district may retain a lawyer
on a contingent-fee basis to prosecute litigation designed to increase the
appraised value of property so as to generate more tax receipts for the
school district. We conclude that no statute expressly authorizes a
school district to do so. We further conclude that authority for such an
arrangement cannot be implied from a school district’s express authority
to bring litigation regarding appraisals.
A political subdivision’s general authority to bring litigation and
to hire lawyers may in some instances entail the implied power to pay
those lawyers a contingent fee. Implying such a power in the
tax-appraisal context, however, would be inconsistent with the
comprehensive statutory framework governing property taxation, which
vests appraisal districts with the responsibility to neutrally appraise
2
property and guards against personal financial incentives to maximize
appraised values. The law has long acknowledged that contingent-fee
arrangements creating a personal profit motive to maximize taxation
may be “unfair and unjust to the public.” White v. McGill, 114 S.W.2d
860, 863 (Tex. 1938). The Legislature has expressly authorized such
arrangements only for the collection of delinquent taxes that have
already been imposed but remain unpaid. TEX. TAX CODE § 6.30. It has
not done so with respect to litigation seeking to increase appraisal
values, and we find no valid basis on which to imply such authority.
Because the school district in this case lacked legal authority to
engage its attorney on a contingent-fee basis to bring this appraisal
litigation, the district court correctly granted the defendants’ Rule 12
motion challenging the attorney’s authority to represent the school
district. However, dismissal of the school district’s case with prejudice
was not the proper remedy under Rule 12. The school district must be
afforded the opportunity to adjust its contract with its attorney or to
substitute other counsel if it wishes to continue prosecuting this lawsuit.
The case is remanded to the district court for that purpose.
I.
Iraan-Sheffield ISD, located in Pecos County, employed attorney
D. Brent Lemon to pursue claims regarding the Pecos County Appraisal
District’s allegedly inaccurate valuation of Kinder Morgan’s mineral
interests. The school district’s contract with Mr. Lemon promises to
compensate him as follows:
Twenty percent (20%) of all total and gross payments,
funds, compensation, or value (including agreement for
future payments) received by Clients from any source
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related to or paid on behalf of Kinder Morgan, Inc., its
predecessors, affiliates, or subsidiaries related in any way
to the Claim.
Consultants retained by Mr. Lemon criticized the Appraisal
District’s valuation of Kinder Morgan’s property as far too low. Lemon
demanded the Appraisal District reappraise the properties, but the
Appraisal District declined. On the school district’s behalf, Lemon
challenged the appraisal before the Appraisal Review Board pursuant
to section 41.03 of the Tax Code.
Section 41.03 authorizes appraisal challenges by taxing units
only on certain enumerated grounds, one of which is “an exclusion of
property from the appraisal records.” Id. § 41.03(a)(1). The school
district’s challenge to Kinder Morgan’s appraisal relied on this
provision, which on its face applies only to challenges to the “exclusion
of property” from appraisal, not challenges to the amount of an
appraisal. The parties argued below, and to some extent continue to
argue in this Court, over whether section 41.03(a)(1) authorizes the
school district’s challenge. This merits question is not properly before
us in this appeal from a dismissal under Texas Rule of Civil Procedure
12. We therefore do not resolve it.1
1 The school district cites our decision in Kinder Morgan SACROC, a
related case, to support its contention that property should be considered
“excluded” from the appraisal records and therefore subject to challenge under
section 41.03(a)(1) if an appraisal is erroneously low because of taxpayer fraud.
In Kinder Morgan SACROC, we observed that section 41.03(a)(1) “has been
construed” as providing “a remedy for an erroneous appraisal based on
property that escaped taxation because of a void assessment arising from
taxpayer fraud.” 622 S.W.3d at 845 (quoting Willacy Cnty. Appraisal Dist. v.
Sebastian Cotton & Grain, Ltd., 555 S.W.3d 29, 50 (Tex. 2018)). Of course,
4
The Appraisal Review Board denied the school district’s
challenge. The school district appealed that decision to district court, as
permitted by section 42.031(a) of the Tax Code. It named Kinder
Morgan and the Appraisal District as defendants. 2 When Kinder
Morgan asked Mr. Lemon to identify the source of his authority to
represent the school district, he provided the above-quoted contract.
Kinder Morgan then filed a motion under Rule 12 alleging that
Mr. Lemon lacks authority to represent the school district because the
school district has no power to hire attorneys on a contingent-fee basis
for this appraisal litigation. The motion also asked the court to strike
the school district’s pleadings. Kinder Morgan simultaneously filed a
plea to the jurisdiction, arguing that if the pleadings were struck as
observing in passing that a statute “has been construed” a certain way is
hardly a precedential holding that it must be so construed. Kinder Morgan
SACROC quoted a passage from our decision in Willacy County, but that
passage addressed a different provision of the Tax Code, section 25.21. Amicus
curiae Texas Taxpayers and Research Association argues that the school
district cannot attack the appraisal of Kinder Morgan’s property by claiming
that property was “excluded” from the tax roll when in fact “Kinder Morgan’s
property was appraised by the chief appraiser as required by law and placed
on the tax roll.” Amicus curiae Texas Oil and Gas Association similarly argues
that section 41.03(a) is inapplicable because “it is undisputed that Kinder
Morgan’s property was in fact included in the Pecos County appraisal records
and appraised and taxed during each and every one of the disputed years.” The
petitioners themselves do not directly present this merits argument for our
consideration, and they likely could not have done so given the procedural
posture—an appeal from a non-merits dismissal under Rule 12. We consider
the question open for further litigation.
2See TEX. TAX CODE § 42.21(b) (stating that an appeal to district court
“must be brought against the appraisal district and against the owner of the
property involved in the appeal”). The defendants filed joint briefs in this
Court, and this opinion often refers collectively to the defendants as “Kinder
Morgan.”
5
requested, the time for filing the appeal in district court had expired and
the court therefore lacked jurisdiction.3 Among other arguments, the
school district responded that section 6.30(c) of the Tax Code authorized
Mr. Lemon’s representation. The district court agreed with Kinder
Morgan. It struck the school district’s pleadings and rendered judgment
dismissing the suit with prejudice.
The court of appeals reversed. 645 S.W.3d 827, 843 (Tex. App.—
El Paso 2022). It concluded that section 6.30(c) of the Tax Code
authorizes the contingent-fee arrangement between Mr. Lemon and the
school district. Id. at 840–41.
II.
Kinder Morgan refers to Mr. Lemon as a “tax ferret.”4 Not to be
outdone, Lemon calls Kinder Morgan a “tax cheat” and “the progeny of
Enron.” Name-calling aside, this case does not turn on whether it is
accurate to call Lemon’s agreement with the school district a “tax ferret
contract.” This colorful terminology does not aid our review of the legal
questions presented, which turn primarily on the relevant provisions of
the Tax Code, none of which use mammalian metaphors.
3See TEX. TAX CODE § 42.21(a) (providing a 60-day deadline for filing
an appeal in district court).
4 “A ‘tax ferret contract’ has been defined as an agreement to locate
property that has been omitted from the tax rolls.” Kinder Morgan SACROC,
622 S.W.3d at 843. Kinder Morgan wields the term “tax ferret” as a
condemnation. Mr. Lemon is eager to assure us that he is no such thing. We
assume the parties mean no disrespect to the furry mammal itself, a beloved
pet of Queen Elizabeth I, celebrated annually on National Ferret Day, April 2.
6
A.
Any action of a political subdivision, including a school district,
“must be grounded ultimately in the constitution or statutes.” Guynes
v. Galveston County, 861 S.W.2d 861, 863 (Tex. 1993). Political
subdivisions “possess only such powers and privileges as have been
expressly or impliedly conferred upon them.” Wasson Ints., Ltd. v. City
of Jacksonville, 489 S.W.3d 427, 430 (Tex. 2016) (quoting Payne v.
Massey, 196 S.W.2d 493, 495 (Tex. 1946)). While a political subdivision’s
express authorities are those that appear expressly in the Constitution
or statutes, its implied authorities are only those that are “reasonably
necessary to make effective” the expressly granted powers. State v.
Hollins, 620 S.W.3d 400, 406 n.28 (Tex. 2020) (quoting Tri-City Fresh
Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 947 (Tex. 1940)).
Authority will not be implied lightly. We have explained that the
“reasonably necessary to make effective” standard encompasses those
powers that are “indispensable” or “essential” to the exercise of
expressly granted powers. Id. at 406 (quoting Foster v. City of Waco, 255
S.W. 1104, 1105–06 (Tex. 1923)). Any reasonable doubt concerning the
existence of an implied power is resolved against the political
subdivision. Id. (quoting Foster, 255 S.W. at 1106).
The school district first contends that section 6.30(c) of the Tax
Code expressly authorizes Mr. Lemon’s contingent-fee agreement.
Section 6.30(c) states:
The governing body of a taxing unit may contract with any
competent attorney to represent the unit to enforce the
collection of delinquent taxes. The attorney’s
compensation is set in the contract, but the total amount of
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compensation provided may not exceed 20 percent of the
amount of delinquent tax, penalty, and interest collected.
The court of appeals held that this statute authorizes the school district
to retain Lemon on a contingent-fee basis to bring this litigation. 645
S.W.3d at 841. We disagree.
As always, our analysis of the statute “begins with the statutory
text.” In re Geomet Recycling LLC, 578 S.W.3d 82, 86 (Tex. 2019).
Section 6.30(c)’s authorization of a 20 percent contingency fee applies
only to attorneys hired “to enforce the collection of delinquent taxes.”
The parties agree that whether section 6.30(c) applies turns on whether
the school district’s suit is “to enforce the collection of delinquent taxes.”
It is not, for multiple reasons.
First and foremost, the additional taxes the school district hopes
Kinder Morgan will be required to pay are in no sense “delinquent,” as
the Tax Code consistently uses that term. The school district contends
that it is accurate to call the taxes at issue “delinquent” because, absent
Kinder Morgan’s alleged fraud, the taxes rightly were owed in previous
years and are therefore “delinquent” in the sense that they were not paid
when they should have been owed. But the Tax Code does not use the
labels “delinquent” or “delinquency” casually or colloquially. These are
carefully defined terms of art, and various legal consequences attach
when unpaid taxes become correctly described as “delinquent.” See, e.g.,
TEX. TAX CODE §§ 33.01, .07.
The Tax Code leaves little doubt about when taxes become
“delinquent,” and its conception of delinquency differs from the school
district’s. Section 31.02(a) states that “taxes are due on receipt of the
tax bill and are delinquent if not paid before February 1 of the year
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following the year in which imposed.” Section 31.04 contains additional
provisions used to determine when unpaid taxes become “delinquent” in
various circumstances, none of which applies here.
In the scenario before us, there have been no taxes “imposed”
based on the heightened valuation the school district desires, so there
are no “delinquent taxes” to collect. This lawsuit seeks to require the
Appraisal District to raise its valuation of Kinder Morgan’s property so
that Kinder Morgan will owe additional taxes, which have not yet been
imposed. The school district anticipates that success in this suit would
yield an increased appraisal, which would require the assessment of
additional taxes against Kinder Morgan, which could then be collected.
If “not paid before February 1 of the year following the year in which
imposed,” such taxes would generally be “delinquent.” Id. § 31.02(a).
But the taxes at issue in this litigation have yet to be assessed or
imposed. They cannot possibly be “delinquent.”5
The school district cannot be right about the authority granted to
it by section 6.30(c) unless “delinquent” means one thing in that section
and an altogether different thing everywhere else in the Tax Code. But
it is well settled that “when feasible, we should consistently interpret
terms used throughout a statute.” Tex. Dep’t of Transp. v. Needham, 82
S.W.3d 314, 321 (Tex. 2002). The need for consistent and predictable
5 See, e.g., In re ExxonMobil Corp., 153 S.W.3d 605, 609 (Tex. App.—
Amarillo 2004, orig. proceeding) (holding that a suit by a taxing unit asserting
that taxpayers’ fraudulent conduct resulted in the undervaluation of their
mineral interests was not a suit “to collect delinquent taxes” because there was
“no allegation the defendants failed to pay the taxes assessed them with
respect to the oil interests”).
9
interpretation of the term “delinquent” or “delinquency” throughout the
Tax Code is particularly acute given the severe consequences that can
follow when unpaid taxes become “delinquent.”6 Nothing in the Tax
Code’s interrelated provisions governing property taxes indicates that
“delinquent” has a different meaning in section 6.30(c) than it does
elsewhere in the Code.
Aside from the problem with the school district’s idiosyncratic
conception of the word “delinquent,” the school district’s position does
not adequately account for section 6.30(c)’s use of the words “enforce”
and “collection.” There can be no “collection” of the taxes at issue here
because those taxes have not been assessed. Likewise, there can be no
“enforcement” of a payment obligation that has not yet arisen. The
school district’s suit seeks to bring about the assessment of additional
taxes against Kinder Morgan, taxes that could then be collected. If taxes
imposed on Kinder Morgan remained uncollected past their delinquency
date, the school district could then consider its options “to enforce the
collection of delinquent taxes,” which include the contingent-fee
arrangements authorized by section 6.30(c). But that is not what is
happening in this case. There is no sense in which the suit before us—
which seeks to increase the appraised value of Kinder Morgan’s
property—is a suit “to enforce the collection of delinquent taxes” as the
Tax Code uses that phrase.
6 Possible consequences include monetary penalties and seizure of
property. See, e.g., TEX. TAX. CODE §§ 33.01, .07, .21, .22, .41, .53, .91, .911.
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B.
Because nothing in the Tax Code itself indicates that the power
to hire attorneys “to enforce the collection of delinquent taxes” includes
the power to hire attorneys to advocate for increased appraisal values,
the school district supports its reading of the Code primarily by pointing
to this Court’s prior decisions. Its appeals to precedent, however, are
unconvincing. The school district first relies on Willacy County
Appraisal District v. Sebastian Cotton & Grain, Ltd., 555 S.W.3d 29(Tex. 2018), for the proposition that tax liability arises from property
ownership, not from receipt of a tax bill. Willacy County indeed supports
that proposition, but the proposition does not help the school district.
As we observed in Willacy County, under section 31.02 of the Tax
Code, “[t]axes are due upon receipt of the tax bill, but delinquency is not
dependent on such receipt. Rather, taxes ‘are delinquent if not paid
before February 1 of the year following the year in which imposed.’” 555
S.W.3d at 44 (quoting TEX. TAX CODE § 31.02(a)). The school district is
therefore correct that Kinder Morgan’s having not received a tax bill
does not determine whether the taxes at issue are “delinquent.” But as
section 31.02 makes clear—and as we said in the very next sentence in
Willacy County—taxes do not become “delinquent” until some time after
they have been “imposed.” The taxes the school district hopes will be
imposed on Kinder Morgan have not yet been imposed, so there can be
no delinquency within the meaning of section 31.02. Nothing in Willacy
County says otherwise.
The school district relies most heavily on White v. McGill, 114
S.W.2d 860 (Tex. 1938). The court of appeals did the same. 645 S.W.3d
11at 833–34, 839–40. In the court of appeals’ view, White required it to
adopt a “non-technical” understanding of section 6.30(c)’s use of the term
“delinquent taxes,” under which the term encompasses the
as-yet-unassessed taxes at issue here. In White, this Court considered
the legality of a “tax ferret contract” with non-attorneys who were paid
a contingent fee for recovery of taxes on property not yet on the tax rolls.
A predecessor statute to section 6.30(c), in effect at the time, provided
as follows:
Section 1. No contract shall be made or entered into by the
Commissioners’ Court in connection with the collection of
delinquent taxes where the compensation under such
contract is more than fifteen per cent of the amount
collected. Said contract must be approved by both the
Comptroller and the Attorney General of the State of
Texas, both as to substance and form. Provided however
the County or District Attorney shall not receive any
compensation for any services he may render in connection
with the performance of the contract or the taxes collected
thereunder.
TEX. REV. CIV. STAT. art. 7335a (Act of Feb. 17, 1930, 41st Leg., 4th C.S.,
ch. 8, 1930 Tex. Gen. Laws 9, 9, repealed by Act of May 26, 1979, 66th
Leg., ch. 841, § 6(a)(1), 1979 Tex. Gen. Laws 2217, 2329).
Although the contract at issue in White contemplated the
collection of taxes not yet imposed (and therefore not “delinquent” in the
modern Tax Code sense), this Court held that the statute nevertheless
applied to the contract. The Court concluded, essentially, that the term
“delinquent taxes” as used in article 7335a could include taxes not yet
imposed, reasoning that “we do not think the Legislature used the words
‘delinquent taxes’ in a technical sense.” 114 S.W.2d at 863. Other
considerations also influenced the Court’s reasoning in White, but the
12
school district focuses our attention on White’s statement that the
Legislature did not use “delinquent taxes” in a “technical sense.” The
school district extrapolates from this statement a requirement that the
term “delinquent taxes” must likewise be given a “non-technical sense”
in section 6.30(c), a successor statute to article 7335a regarding the
authority of taxing units to hire agents using contingent fees.
If the reasoning of White indeed controlled our interpretation of
section 6.30(c), as the court of appeals thought, then we might agree
with the court of appeals’ conclusion as a matter of precedent, despite
the textual problems with this view of the statute. But White
interpreted a different statute than the one at issue here, and it did so
long before the Legislature enacted the modern Tax Code. White is not
binding precedent on the interpretation of section 6.30(c), which differs
from the statute White considered and is situated within a
comprehensive statutory scheme that did not exist when White was
decided.
To begin with, section 6.30(c) differs materially from the statute
at issue in White in a way that has nothing to do with the disputed word
“delinquent.” The prior statute broadly covered all contracts “in
connection with” the collection of delinquent taxes, while the current
statute is limited to contracts “to enforce” the collection of delinquent
taxes. This change in phrasing between the prior statute and the one in
effect today suggests a deliberate constriction of the statute’s scope.
While the prior statute analyzed in White applied to any contract “in
connection with” the collection of delinquent taxes, today’s statute now
specifies only a single “connection.” In order for section 6.30(c) to apply,
13
the contract must be “to enforce” the collection of delinquent taxes. No
other contract “in connection with” the collection of delinquent taxes is
within the scope of section 6.30(c). Of course, in order to be “enforced”—
rather than imposed in the first place—tax obligations must already
exist, which distinguishes the scenario envisioned by section 6.30(c)
from the school district’s position. Thus, quite apart from the parties’
focus on the word “delinquent,” the statutory text has been adjusted
since White in a way that restricts its authorization of contingent fees to
the enforcement of existing tax obligations. There is no sense in which
the school district’s litigation against Kinder Morgan fits that
description.
White must also be placed in its historical and legal context. It
was decided “long before the Tax Code was enacted in 1979.” Kinder
Morgan SACROC, 622 S.W.3d at 843.7 In the years since White, the
Legislature decided to place today’s version of section 6.30(c) within the
7 The modern “Property Tax Code,” which is Title I of the Tax Code,
created a comprehensive regulatory scheme designed in part to yield more fair
and uniform property valuations. It abolished the appraisal authority of taxing
units and established a centralized appraisal district for each county. See Jim
Wells County v. El Paso Prod. Oil & Gas Co., 189 S.W.3d 861, 871 (Tex. App.—
Houston [1st Dist.] 2006, pet. denied); WILLIAM D. ELLIOT & J. SCOTT MORRIS,
ELLIOT & MORRIS’ TEXAS TAX CODE ANNOTATED § 1.01 commentary; TEX.
PROP. CODE §§ 6.01, .05. Appraisal review boards were created to hear
taxpayer and taxing unit complaints, with certain appeal rights to the courts.
ELLIOT & MORRIS, supra, § 1.01 commentary; TEX. PROP. CODE §§ 6.41; 41.01,
.03; 42.01, .031. The appraisal district was charged with the exclusive
responsibility for appraising property in the district. Taxing units were pushed
out of the appraisal process altogether, except for a limited right to contest
appraisals before the appraisal review board and to appeal those decisions to
district court. Jim Wells County, 189 S.W.3d at 871; ELLIOT & MORRIS, supra,
§ 1.01 commentary; see TEX. PROP. CODE §§ 6.01, .05; 41.03; 42.031.
14
comprehensive and interrelated statutory framework that is Title I of
the Tax Code, also known as the Property Tax Code. Act of May 26,
1979, 66th Leg., R.S., ch. 841, § 1, sec. 6.30, 1979 Tex. Gen. Laws 2217,
2231. Even if White were correct that the Legislature did not use the
word “delinquent” in a “technical sense” in article 7335a—a defunct
statute that resembles but differs from section 6.30(c)—this historical
observation does not authorize us to interpret the word “delinquent” in
the modern Tax Code in a way that is out of step with the word’s precise
and consistent meaning throughout the Code. If the Legislature
actually sought to preserve White’s “non-technical” understanding of
“delinquent taxes” in the limited realm of contingent-fee contracts, it
certainly could have said so. Instead, it generated the opposite result by
incorporating the amended, modern version of section 6.30(c)—and its
reference to “delinquent taxes”—into a comprehensive Code that
contains a clear and consistent understanding of the words “delinquent
taxes.” White does not authorize courts to give section 6.30(c)’s use of
“delinquent taxes” a different meaning than those words have elsewhere
in the Code, and the court of appeals erred by holding otherwise.
For these reasons, we agree with Kinder Morgan that section
6.30(c) did not authorize the school district to retain Mr. Lemon on a
contingent-fee basis. Section 6.30(c) authorizes contingent-fee contracts
only “to enforce the collection of delinquent taxes,” which means taxes
that have already been imposed and have become delinquent as the Tax
Code uses that term. See TEX. TAX CODE § 31.02.
Finally, the school district also relies on section 45.231(a) of the
Education Code, which provides: “The board of trustees of an
15
independent school district may employ a person to assess or collect the
school district’s taxes and may compensate the person as the board of
trustees considers appropriate.”8 Just as the school district’s retention
of Mr. Lemon is not “to enforce the collection of delinquent taxes,” it is
also not “to assess or collect the school district’s taxes.” This lawsuit—
and the administrative challenge underlying it—seeks to increase
Kinder Morgan’s appraisals so as to impose additional taxes on Kinder
Morgan. The “assessment” and “collection” of these taxes are later
stages of the process, which can only take place if the appraisals are in
fact increased. See generally id. §§ 26.01–.18, 31.01–.12. Because there
is no sense in which Mr. Lemon’s actions in this case amount to the
assessment or collection of taxes, his authority to represent the school
district in this litigation cannot be found in section 45.321(a) of the
Education Code.
C.
The school district points to no other statute that might explicitly
authorize it to engage Mr. Lemon on a contingent-fee basis for this
litigation. This brings us to the question of whether the school district’s
authority for its arrangement with Mr. Lemon arises impliedly from one
of the district’s expressly granted powers. As explained above, implied
authority should be found only when it is “indispensable to the declared
objects of the corporation and the accomplishment of the purposes of its
creation.” Tri-City, 142 S.W.2d at 947.
8 Section 11.1511(c)(3) of the Education Code similarly empowers a
school board to “employ a person to assess or collect the district’s taxes as
authorized under Section 45.231.”
16
Kinder Morgan does not dispute that the express authority to
bring litigation necessarily entails implied authority to hire attorneys to
do so. Whether the general power of a governmental unit to hire
attorneys for litigation includes the power to pay them contingent fees
in other contexts—such as tort actions—is not a question we consider
here. Instead, the narrow question before us is whether, in the
particular context of appraisal litigation, the express authority of a
taxing unit to challenge appraisals necessarily entails implied authority
to hire attorneys on a contingent-fee basis, an arrangement which gives
the attorneys a personal financial incentive to maximize appraisal
values. We conclude that no such authority can be implied from the
relevant statutes.
Both the Legislature and this Court have long been cognizant
that the government’s use of contingent-fee agreements in the taxation
context can be “unfair and unjust to the public.” White, 114 S.W.2d at
863. This “evil,” as we called it in 1938, motivated the Legislature to
enact article 7335a, the statute at issue in White, which authorized some
contingent-fee agreements with a 15 percent cap and required approval
by the Attorney General and the Comptroller. TEX. REV. CIV. STAT. art.
7335a (repealed 1979). Section 6.30(c), the amended successor statute
to article 7335a, likewise authorizes contingent-fee contracts in discrete
circumstances and limits the fee’s percentage. TEX. TAX CODE § 6.30(c).
Moreover, because of Texas law’s longstanding skepticism and close
regulation of such arrangements in the taxation context, the Attorney
General in 2000 issued an opinion concluding that a taxing unit has
17
neither express nor implied authority to enter such contracts. Tex. Att’y
Gen. Op. No. JC-0290 (2000).
Undergirding any statute or judicial opinion regarding taxation
is the Texas Constitution’s requirement that “[t]axation shall be equal
and uniform.” TEX. CONST. art. VIII, § 1(a). In light of that foundational
promise, we cannot lightly disregard legitimate concerns—which have a
lengthy pedigree in Texas law—that contingent-fee contracts such as
this one create “incentives to maximize recovery in ways that may be
abusive, coercive, or harassing.” Kinder Morgan SACROC, 622 S.W.3d
at 843.
The Tax Code does not mention contracts such as Mr. Lemon’s
specifically, but the Code is elsewhere keenly concerned to guard against
similar incentives to maximize appraisals. Section 25.01(b) of the Tax
Code prohibits appraisal districts from hiring outside firms on a
contingent-fee basis. The obvious aim of such a prohibition is to protect
taxpayers from those with a personal financial incentive to raise
appraisals as high as possible. The statutes governing appraisals guard
against improper incentives in other ways, as well. For example, most
employees of taxing units within an appraisal district are ineligible to
serve on the board of the district. TEX. TAX CODE § 6.03(a). And the
compensation of an appraisal district’s chief appraiser cannot be linked
to an increase in appraised values. Id. § 6.05(d).
We must consider the school district’s claim to implied authority
against the backdrop of these related statutory provisions and in light
of the well-recognized concerns that accompany contingent-fee
agreements in the taxation context. The Legislature’s response to those
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concerns, thus far, has been to authorize taxing units to use
contingent-fee agreements related to taxation in only one specific
circumstance—to “enforce the collection of delinquent taxes.” Id.
§ 6.30(c).
With this legal background in mind, the question is whether the
Legislature’s silence as to contracts like Mr. Lemon’s is better
understood as (1) implying that such contracts are authorized, or
(2) withholding authorization. The second is far more likely. The best
inference from the Legislature’s silence is that the law-making branch
has not authorized taxing units to pursue appraisal litigation by
engaging attorneys on a contingent-fee basis—not that the Legislature
has impliedly authorized such controversial contracts without saying so.
See., e.g., Hollins, 620 S.W.3d at 408 (given the law’s longstanding
concern with regulating ballot security, “the only fair inference from the
Code’s express recognition of private distribution of ballot applications
and its silence on any official distribution is that the latter is
unauthorized”).
The school district contends that requiring Kinder Morgan to pay
the taxes it rightfully should owe—which is what the school district
believes Mr. Lemon’s representation does—would best promote equality
and uniformity in taxation. Kinder Morgan disagrees, of course. It
contends that equality and uniformity of taxation are diminished when
attorneys are given a personal financial incentive to maximize appraisal
values. The Constitution charges the Legislature with making such
determinations. The Legislature’s duty is to “provide[] by law” for the
“equal and uniform” ascertainment of the value of taxable property.
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TEX. CONST. art. VIII, § 1(a), (b). In so doing, the Legislature has neither
explicitly nor impliedly authorized taxing units to pay contingent fees to
attorneys to pursue either administrative appraisal challenges or
appraisal litigation. We therefore hold that the school district lacks
authority to retain Mr. Lemon for this litigation on a contingent-fee
basis.
III.
Although we agree with Kinder Morgan that Texas law does not
authorize the school district to retain Mr. Lemon on a contingent-fee
basis, we must also consider whether Kinder Morgan’s Rule 12 motion
properly challenged Lemon’s authority and whether the appropriate
relief under Rule 12 was to dismiss the school district’s case with
prejudice. As explained below, we conclude that Rule 12 allows for
challenges to contingent-fee contracts of this nature but that the school
district’s claims should not have been dismissed with prejudice.
Rule 12 provides:
A party in a suit or proceeding pending in a court of this
state may, by sworn written motion stating that he believes
the suit or proceeding is being prosecuted or defended
without authority, cause the attorney to be cited to appear
before the court and show his authority to act. The notice
of the motion shall be served upon the challenged attorney
at least ten days before the hearing on the motion. At the
hearing on the motion, the burden of proof shall be upon
the challenged attorney to show sufficient authority to
prosecute or defend the suit on behalf of the other party.
Upon his failure to show such authority, the court shall
refuse to permit the attorney to appear in the cause, and
shall strike the pleadings if no person who is authorized to
prosecute or defend appears. The motion may be heard and
determined at any time before the parties have announced
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ready for trial, but the trial shall not be unnecessarily
continued or delayed for the hearing.
TEX. R. CIV. P. 12.
The school district contends that its alleged lack of authority to
pay Mr. Lemon a contingent fee is immaterial to Lemon’s authority to
represent the district. The school district points to testimony from its
superintendent indicating that the school district in fact authorized
Lemon to represent it in court. It views this factual authorization as the
only thing required by Rule 12. We disagree.
Rule 12 may be used both “to prevent an attorney from purporting
to represent a client when the client has not authorized that
representation” and also “to question whether a party has the power or
authority to hire an attorney.” Gulf Reg’l Educ. Television Affiliates v.
Univ. of Hous., 746 S.W.2d 803, 809 (Tex. App.—Houston [14th Dist.]
1988, writ denied). In either situation—whether the defect in authority
is factual or legal—the “proceeding is being prosecuted or defended
without authority” if the challenged attorney cannot “show his authority
to act.” TEX. R. CIV. P. 12.
Because the school district is a political subdivision with only
those powers assigned to it by the Legislature, the intent of its officers
to take an action does not mean the action has the intended legal effect.
This is because an ultra vires action outside the authority of a political
subdivision is void and therefore has no legal consequence. See
Chambers–Liberty Cntys. Navigation Dist. v. State, 575 S.W.3d 339,
348–55 (Tex. 2019); see also City of Arlington v. Lillard, 294 S.W. 829,
830 (Tex. 1927). Thus, the school district does not actually vest an
attorney with the “authority to act,” as contemplated by Rule 12, if the
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means by which it attempts to do so are beyond its power. If the school
district lacks the power to retain attorneys on a contingent-fee basis to
pursue appraisal litigation, as we hold above, then Mr. Lemon cannot
show his authority to represent the school district in this lawsuit by
pointing to his contingent-fee contract, which was an ultra vires act
beyond the school district’s authority.
Nor can the contingent-fee provision of the contract be separated
from the contract’s other provisions authorizing Mr. Lemon to represent
the school district in court. If the Legislature’s choice not to authorize
contingent-fee contracts in appraisal litigation brought by taxing units
is to have any practical effect, it must at least mean that an attorney
retained by a taxing unit under such a contract cannot proceed any
further once the existence of an ultra vires contingent-fee agreement is
established. Outside of tax litigation, it may not always be the case that
questions about the way a governmental client has chosen to pay its
attorney implicate the attorney’s “authority to act” as contemplated by
Rule 12. We are mindful of the potential that Rule 12 may be abused,
and we have previously cautioned that attorney disqualification is a
severe remedy that “can result in immediate and palpable harm, disrupt
trial court proceedings, and deprive a party of the right to have counsel
of choice.” In re Nitla S.A. de C.V., 92 S.W.3d 419, 422 (Tex. 2002).
As explained above, however, both the Judiciary and the
Legislature of our State have long been concerned with the way
attorneys or other agents of the government are paid in the taxation
context. The issue here is not a technical or procedural defect in the
school district’s hiring of Mr. Lemon. To the contrary, legal limitations
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on the authority of taxing units to give their hired agents a financial
incentive to maximize taxation exist to protect the substantive rights of
taxpayers. Contracts executed in violation of these limitations cannot
be minimized as mere paperwork errors or excused as immaterial to the
attorney’s authority to prosecute the litigation. In these circumstances,
we hold that a Rule 12 motion challenging an attorney’s authority to
represent a taxing unit on a contingent-fee basis is a proper way for a
taxpayer to insist that taxing units pursue increased taxation only by
lawful means.9
Finally, although we agree with the district court that Mr. Lemon
failed to show his authority under Rule 12, the proper remedy was not
dismissal with prejudice of the school district’s claims. Rule 12 states
its remedy. The Court “shall refuse to permit the attorney to appear in
the cause, and shall strike the pleadings if no person who is authorized
to prosecute or defend appears.” The district court properly applied the
first part of this remedy by refusing further appearance by Mr. Lemon
under his contingent-fee contract. But the district court also struck the
school district’s pleadings, a sanction only available “if no person who is
authorized to prosecute or defend appears.” We see no indication in the
record—and Kinder Morgan does not contend—that the school district
was afforded a reasonable opportunity to hire another attorney or to
adjust its arrangement with Mr. Lemon, either of which would have
cured the problem identified by the Rule 12 motion.
9We find no support in the record for the school district’s complaints
regarding the notice or timing of the Rule 12 hearing in the district court.
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As we recently observed in related litigation, “[w]hile Rule 12
requires the trial court to dismiss counsel who fails to show authority to
prosecute or defend the proceeding, pleadings filed by any such counsel
are not nullified and may only be stricken ‘if no person who is authorized
to prosecute or defend appears.’” Kinder Morgan SACROC, 622 S.W.3d
at 846. The leniency and flexibility of this remedy recognizes that claims
and defenses in litigation belong to the parties, not their lawyers. Here,
the Legislature has given the school district the right to pursue
administrative appraisal challenges and appraisal litigation. See TEX.
TAX CODE §§ 41.03, 42.031. The school district may continue to exercise
that right if it so chooses, but it must do so through attorneys hired on
terms that are within its statutory authority.10
IV.
Although we disagree with the court of appeals’ holding that the
law authorizes the school district’s contingent-fee contract with Mr.
Lemon, we nevertheless affirm the court of appeals’ judgment insofar as
it reverses the dismissal with prejudice of the school district’s claims.
The case is remanded to the district court for further proceedings
consistent with this opinion. On remand, the school district must be
given a reasonable opportunity either to modify its agreement with Mr.
Lemon or to retain other counsel on terms that are within its lawful
authority.
10 The parties agree that the contingent-fee contract at issue is not
subject to sections 2254.1036 and 2254.1038 of the Government Code, enacted
in 2019. Act of May 21, 2019, 86th Leg., R.S., ch. 857, § 4, 2019 Tex. Gen. Laws
2321, 2322–23. We express no opinion on the effect of these recently enacted
provisions on the questions addressed in this opinion.
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James D. Blacklock
Justice
OPINION DELIVERED: May 19, 2023
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