Texas Workforce Commission and the Texas Comptroller of Public Accounts v. Taufiq Ahmed Zikreel Ahmed Bank of America, N.A. Mayfair Station, LLC American Business Lending, Inc. Inland American Arlington Riverview Limited Partnership City of Fort Worth Fort Worth Independent School District Tarrant County Tarrant County College District Tarrant County Hospital District Tarrant Regional Water District And Unknown Members, Successors, and Assigns of Murray Investment Company ( 2019 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-17-00448-CV
___________________________
TEXAS WORKFORCE COMMISSION AND THE TEXAS COMPTROLLER OF
PUBLIC ACCOUNTS, Appellants
V.
TAUFIQ AHMED; ZIKREEL AHMED; BANK OF AMERICA, N.A.; MAYFAIR
STATION, LLC; AMERICAN BUSINESS LENDING, INC.; INLAND AMERICAN
ARLINGTON RIVERVIEW LIMITED PARTNERSHIP; CITY OF FORT WORTH;
FORT WORTH INDEPENDENT SCHOOL DISTRICT; TARRANT COUNTY;
TARRANT COUNTY COLLEGE DISTRICT; TARRANT COUNTY HOSPITAL
DISTRICT; TARRANT REGIONAL WATER DISTRICT; AND UNKNOWN
MEMBERS, SUCCESSORS, AND ASSIGNS OF MURRAY INVESTMENT
COMPANY, Appellees
On Appeal from the 236th District Court
Tarrant County, Texas
Trial Court No. 236-B42882-11
Before Gabriel, Kerr, and Pittman, JJ.
Memorandum Opinion by Justice Kerr
MEMORANDUM OPINION
Two lienholders—the Texas Workforce Commission (TWC) and the Texas
Comptroller of Public Accounts—appeal from the trial court’s final judgment
disbursing all the excess proceeds of a tax-lien-foreclosure sale to a third lienholder,
IA America Arlington Riverview Limited (IA America). See Tex. Tax Code Ann.
§§ 34.03–.04. The trial court rendered its judgment after a hearing at which TWC and
the Comptroller were not present. TWC and the Comptroller complain in two issues
that the trial court erred by denying their post-default-judgment motion for new trial
because IA America did not properly serve them with its petition to disburse excess
proceeds and because they established their right to a new trial under Craddock v.
Sunshine Bus Lines, 133 S.W.2d 124, 126 (Tex. 1939). The Comptroller additionally
complains in a separate issue that because all service on its behalf in this suit has been
to the Attorney General, a separate agency, it has never been properly served with
citation or any document in the suit. Because we hold that the trial court rendered its
excess-proceeds judgment after insufficient statutory notice, we reverse the judgment
and remand the case to the trial court for a new trial.
Background
Various local taxing authorities (the City of Fort Worth, Tarrant County, Fort
Worth Independent School District, Tarrant Regional Water District, Tarrant County
Hospital District, and Tarrant County College District) filed a petition to recover
delinquent property taxes from Taufiq and Zikreel Ahmed by foreclosure. The
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petition also named several lienholders as defendants, including IA America and two
State entities:
• the “State of Texas, (lienholder, in rem only), . . . having acquired its interest
in the subject property through [TWC], an agency thereof, . . . upon whom service
may be obtained by serving J. Ferris Duhon, Legal Counsel, 101 E. 15th Street,
Austin, Texas 78778” and
• the “State of Texas, (lienholder, in rem only), . . . having acquired its interest
in the subject property through the Comptroller . . ., an agency thereof, . . . upon
whom service may be obtained by serving Greg Abbott, Attorney General for the
State of Texas or his designee for service of process, 300 West 15th Street, Austin,
Texas 78701.”
The Tarrant County District Clerk served citation on TWC, the Attorney
General of Texas, and IA America by certified mail; the return-receipt cards
confirming service are included in the clerk’s record. But neither TWC, nor the
Attorney General, nor IA America filed an answer, and none of those named and
served defendants appeared at the tax-lien-foreclosure hearing. The trial court
rendered judgment allowing the taxing entities to hold a foreclosure sale to recover
the delinquent taxes. A note on the judgment indicates that it was mailed to the
defaulting defendants.
After the property was sold at foreclosure and the taxing authorities were made
whole, the Constable deposited $39,965.37 in excess proceeds with the District Clerk.
3
Thereafter, in January 2016, the District Clerk notified most of the defendants,
including TWC, that an excess existed. But nothing in the record shows that the
District Clerk notified either the Comptroller or the Attorney General of the excess
proceeds’ deposit. See Tex. Tax Code Ann. § 34.03(a)(3) (requiring the clerk to notify
the Attorney General of any excess-proceeds deposit if a state agency represented by
the attorney general is named as an in rem defendant in the underlying tax-lien-
foreclosure suit).
IA America filed a Petition for Claim of Excess Proceeds in the same trial-
court cause number on February 19, 2016, but the record does not show that it served
the petition on any party to the underlying tax-lien-foreclosure proceeding. On
October 6, 2017, IA America’s attorney filed a notice of trial setting for December 13,
2017; the certificate of service indicates that it was “served upon the Plaintiff and
Defendant via electronic notification,” but it does not list all the multiple plaintiffs
and defendants.
On October 26, 2017, the attorney ad litem for one of the defendants1 filed a
motion to distribute the excess funds to IA America. In that motion’s certificate of
service, the ad litem twice listed the “State of Texas (Lienholder, In Rem Only),” once
through Duhon at TWC’s address and once through the Attorney General at the
The trial court appointed the ad litem for “The Unknown Members,
1
Successors, And Assigns Of Murray Investment Company (Lienholder, In Rem
Only).”
4
Attorney General’s address. The same day, the ad litem filed a notice of hearing
notifying “all parties” that the trial court had set the “Motion for Excess Proceeds”
for a hearing on November 13, 2017. He listed the same two State contacts in the
certificate of service attached to that notice.
No representative appeared for TWC or the Comptroller at the hearing. The
trial court signed an order authorizing the District Clerk to distribute $900 to the ad
litem, a check for court costs to the District Clerk, and the remaining excess proceeds
to IA America’s attorney’s trust account.
Fourteen days later, TWC and the Comptroller filed an answer to IA America’s
petition, a motion for rehearing, and alternatively a motion for new trial. The State
entities argued that the disbursement order was not final because it did not dispose of
all parties but that if it did, then they were entitled to a new trial because IA America
did not serve them with its petition. The Comptroller added that because the
Comptroller is a separate agency from the Attorney General’s office, it had never been
properly served even with the initial tax-foreclosure suit. Alternatively, both entities
argued that they met the Craddock elements for obtaining a new trial.2 133 S.W.2d at
2
Under this well-established standard, a defendant is entitled to a new trial if, in
its motion for new trial, it establishes that (1) its nonappearance was not intentional or
due to conscious indifference, but was instead the result of an accident or mistake;
(2) it has “set up” a meritorious defense; and (3) granting the motion will not unduly
delay or otherwise injure the nonmovant. Dolgencorp of Tex., Inc. v. Lerma, 288 S.W.3d
922, 925 (Tex. 2009).
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126. The trial judge did not rule on the motion for rehearing and allowed the new-trial
motion to be overruled by law. See Tex. R. Civ. P. 329b(c).
TWC and the Comptroller filed this appeal and submitted a joint brief. No
appellee has filed a brief.
Neither IA America’s Petition nor the Ad Litem’s Hearing Notice
Was Served Timely Under Tax Code Section 34.04(b)
In their motion for new trial, TWC and the Comptroller asserted that (1) they
never received a copy of IA America’s petition for excess proceeds and (2) although
TWC and the Attorney General received the ad litem’s hearing notice, they did not
receive that notice at least 20 days before the scheduled excess-proceeds hearing.
Tax code section 34.04(b) requires an excess-proceeds claimant to serve a copy
of its petition in accordance with rule 21a “on all parties to the underlying action not
later than the 20th day before the date set for a hearing on the petition.”3 Tex. Tax
Code Ann. § 34.04(b); Tex. R. Civ. P. 21a. Notice properly sent according to rule 21a
raises a presumption of receipt, but notice must be proved when challenged. Mathis v.
Lockwood, 166 S.W.3d 743, 745 (Tex. 2005). Nothing in the record shows that IA
America served its petition for excess proceeds in compliance with rule 21a; thus, no
3
Although the legislature chose not to require new service of citation with a
petition to claim excess proceeds under section 34.04, the 20-day requirement does
roughly correspond with the time for filing an answer when properly served with
citation in a separate suit. See Tex. R. Civ. P. 99(b).
6
evidence exists that TWC and the Comptroller received the required statutory notice
that IA America had filed an excess-proceeds petition.4 See id. at 745–46.
Although TWC admits that on October 30, 2017, it received the ad litem’s
hearing notice on the excess-proceeds petition, its legal assistant’s affidavit stated that
this was insufficient time for its General Counsel’s office to log the suit into TWC’s
central log and for its Regulatory Integrity Division to then evaluate the case and refer
it to the Attorney General for representation.5 She stated that TWC followed its
normal process and forwarded the hearing notice to the Attorney General, requesting
representation, on November 15, 2017.
The Comptroller attached an affidavit from its Assistant General Counsel for
Agency Affairs stating that the Comptroller has no record of being served with
process for the initial tax-foreclosure suit, nor any record of receiving IA America’s
petition for excess proceeds.
4
For this reason, we need not address the Comptroller’s second issue arguing
that the service of citation of the initial tax-foreclosure suit on the Attorney General
could not be effective against it because it had not yet requested representation. See
Tex. R. App. P. 47.1. As noted above, the Comptroller has now filed an answer in the
suit.
5
The legal assistant also opined that if the Regulatory Integrity Division had
properly forwarded the District Clerk’s notice of excess proceeds to the Attorney
General––its usual procedure that, inexplicably, the Division did not follow here—the
Attorney General would have timely filed a claim to the excess proceeds on TWC’s
behalf instead of TWC’s having to respond to IA America’s petition.
7
Moreover, the face of the record shows that the ad litem did not serve the
hearing notice at least 20 days ahead of time. The notice’s certificate of service recites
that the ad litem faxed it6 on October 26, 2017, 18 days before the hearing. Thus,
even if the hearing notice’s service could be construed as evidence of the petition’s
service under section 34.04(b), it was nevertheless untimely so that TWC and the
Comptroller have proved the first required Craddock element. Cf. In re Marriage of
Parker, 20 S.W.3d 812, 818–19 (Tex. App.––Texarkana 2000, no pet.) (holding that
defaulting party satisfied first Craddock element by showing that he received less than
45 days’ reasonable notice of trial under rule 245); Blanco v. Bolanos, 20 S.W.3d 809,
811–12 (Tex. App.––El Paso 2000, no pet.) (reversing trial court’s post-answer default
judgment in restricted appeal when face of record showed that Bolanos did not give
Blanco the required 45 days’ notice of the trial setting under rule 245); Platt v. Platt,
991 S.W.2d 481, 484 (Tex. App.––Tyler 1999, no pet.) (reversing post-answer default
judgment for new trial when evidence showed petitioner mailed trial-setting notice
one week before trial); see also Levine v. Shackelford, Melton & McKinley, L.L.P., 248
S.W.3d 166, 169 (Tex. 2008) (per curiam) (holding that even negligence will suffice to
meet the first Craddock element).
6
Only one fax number appears on the certificate of service—that of Stephen
Meeks, the taxing authorities’ counsel who filed the initial tax-lien-foreclosure
petition; the remaining named defendants, including TWC and the Attorney General,
are listed only by address.
8
TWC and the Comptroller set up a meritorious defense that as lienholders, they
are statutorily entitled to claim at least part of the proceeds. See Tex. Tax Code
Ann. § 34.04(c)(3). And they alleged in their motion that they are prepared to conduct
a new trial “at the [c]ourt’s earliest convenience” and that IA America will not be
prejudiced because it has notice of both liens. See Dir., State Emps. Workers’ Comp. Div.
v. Evans, 889 S.W.2d 266, 270 (Tex. 1994). Accordingly, we conclude that both TWC
and the Comptroller met all three Craddock elements to be entitled to a new trial. We
therefore sustain their first and third issues, reverse the trial court’s judgment, and
remand this case for a new trial. See Tex. R. App. P. 43.2(d).
/s/ Elizabeth Kerr
Elizabeth Kerr
Justice
Delivered: March 28, 2019
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