Texas Comptroller of Public Accounts v. Walker Electric Company, LLC Walker's Electric Company Walkers Electric Company Calvin G. Walker And Stacy Walker ( 2015 )

ACCEPTED
03-13-00285-CV
3982372
THIRD COURT OF APPEALS
AUSTIN, TEXAS
2/2/2015 3:21:27 PM
JEFFREY D. KYLE
CLERK
NO. 03-13-00285-CV
IN THE COURT OF APPEALS FILED IN
FOR THE THIRD JUDICIAL DISTRICT3rd COURT OF APPEALS
AUSTIN, TEXAS
AT AUSTIN, TEXAS 2/2/2015 3:21:27 PM
JEFFREY D. KYLE
Clerk
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS,
Appellant
v.
WALKER ELECTRIC COMPANY, LLC, WALKER'S
ELECTRIC COMPANY, WALKERS ELECTRIC COMPANY,
CALVING. WALKER, AND STACY WALKER,
Appellees
ON APPEAL FROM THE
126TH JUDICIAL DISTRICT COURT, TRAVIS COUNTY, TEXAS
APPELLEES' MOTION FOR REHEARING
ACE PICKENS
State Bar No. 15972000
HUSCH BLACKWELL LLP
111 Congress Avenue, Suite 1400
Austin, Texas 78701
(512) 479-9709
(512) 479-1101 (Fax)
Ace.Pickens@huschblackwell.com
COUNSEL FOR APPELLEES
NO. 03-13-00285-CV
IN THE COURT OF APPEALS
FOR THE THIRD JUDICIAL DISTRICT
AT AUSTIN, TEXAS
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS,
APPELLANT
v.
WALKER ELECTRIC COMPANY, LLC, WALKER'S
ELECTRIC COMPANY, WALKERS ELECTRIC COMPANY,
CALVING. WALKER, AND STACY WALKER,
APPELLEES
ON APPEAL FROM THE
126TH JUDICIAL DISTRICT COURT, TRAVIS COUNTY, TEXAS
APPELLEES' MOTION FOR REHEARING
TO THE HONORABLE THIRD COURT OF APPEALS:
I.
INTRODUCTION
By this motion for rehearing, Appellees, referred to by the court
collectively as Walker Electric, ask this court to revisit its decision to
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overturn the trial court's decision which denied the Comptroller's plea to its
jurisdiction.
Rehearing is appropriate in this matter because the court's rulings
that Walker Electric failed to invoke a valid waiver of sovereign immunity or
did not present a justifiable controversy was in error.
II.
SUMMARY OF ARGUMENT
1. The facts relied upon by the Comptroller, to find fraud have been
adjudicated in two subsequent cases to the contrary by Administrative Law
Judges at SOAH. The Comptroller as a matter of law was mistaken.
2. The courts announced precedent of no right to a hearing under
the APA, unless there exists an express statutory authority in the agency's
enabling act, is contrary to prior case law. This court should confirm that the
APA itself creates a right to a contested case hearing in those cases where
the agency is required by express or an implied reading of the law, to hear
evidence and based on that evidence acting in a judicial or quasi-judicial
capacity determines the rights, duties or privileges of a party.
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3. Under APA, Section 2001.038, the Comptroller's rule was not
applicable to Walker Electric. The rule is only applicable where the facts
evidence fraud. As a matter of law, the facts relied on by the Comptroller
are not applicable to its rule and jurisdiction exists for the district court to
declare such.
4. The Comptroller was not authorized and exceeded her authority
in Walker Electric, under her rules, no fraud was provable. Suits seeking to
compel the Comptroller to comply with statutory or constitutional provisions,
i.e. ultra vires, is not barred by sovereign immunity.
5. Walker Electric rights are not merely abstract. They stem from
an independent source such as a state law that entitled Walker Electric to
those benefits. As such those rights are entitled to protections of due
process when the Comptroller unjustifiably seeks to take those rights away.
Walker Electric will discuss these assertions further under the points
set forth in its argument.
Ill.
ARGUMENT
1. THE COURTS DISCUSSION OF REGULATORY AND
FACTUAL BACKGROUND.
The court acknowledged that the Comptroller is ( 1) required to create
and maintain a centralized Master Bidders List of Qualified Vendors who
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are registered to bid on State contracts; (2) required, upon application, to
certify a given vendor as a Historically Underutilized Business which state
agencies or their general contractors are required to make a good faith
effort to use HUBS for state projects; and (3) to completely bar vendors
from participating in state contracts up to five years through a process
called debarment for various reasons, upon appropriate proof, including
alleged fraud under TEX. GOV'T. CODE, Section 2155.077(a)(3).
When debarred the vendor is removed from the Centralized Master
Bidders List and any HUB certificate is revoked.
The Comptroller received a complaint from the International
Brotherhood of Electricians. The Comptroller began an investigation of the
allegations. She unjustifiably found fraud under 34 TEX. ADM. CODE,
Section 20.105(d)(2).
Mr. Pigott of the Comptroller's office, without a hearing, debarred
Walker.
Mr. Hubert, Deputy Comptroller, without a hearing, affirmed the
erroneous decision of Mr. Pigott of fraudulent behavior in the performance
of a government contract.
The basis of the Comptroller's decision was the unsupported claim
that Walker Electric had committed fraud by the plea to a misdemeanor
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violation of 26 U.S.C., Section 7203 and the plea agreement amounted to
an admission of altering documents to the Beaumont Independent School
District which by implication amounted to charging the school district for the
materials which were not used in the project.
The Commission and Texas Department of Licensing and Regulation
has adjudicated two contested cases since the Comptroller's unsupported
assertion in this matter. Both found the Comptroller's unadjudicated
assertions without merit.
In State Office of Administrative Hearings' (SOAH) PFD in Docket
No. XXX-XX-XXXX.ELC, the Administrative Law Judge of SOAH found in
Conclusion of Law No. 8 that the same Federal misdemeanor offense of
failure to file returns, supply Information or pay a tax, under 26 U.S.C.,
Section 7203, does not include an element of intent to defraud and is not a
crime against property. (emphasis added). 1 This PFD was adopted without
charge by the Commission.
Another Docket XXX-XX-XXXX.ELC at SOAH, also related to
Mr. Walker. The issue of the alleged altered documents was an issue in
1
SOAH Docket No. XXX-XX-XXXX. Texas Department of Licensing and Regulation v. Calvin G. Walker
dlb/a Walker Electric Company and Walkers Electric Company (TDLR No. ELC 201 3000 7467). To
access a copy of the Proposal for Decision (PFD) utilize the web page for the State Office of
Administrative Hearings (SOAH). Soah .tx.us; Electronic Case Files. Enter the SOAH docket number
above, then press search . Scroll to the PFD where an official copy is maintained by SOAH. In this matter
the agency entered an order adopting the PFD without charge.
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this matter. 2 The same plea document as was involved in this case was
alleged to include 16 TEX. ADMIN. CODE, Section 73.60(d) which states a
licensee shall not. .. (3) engage in any activity that constitutes dishonest
misrepresentation, fraud while performing as a licensee. The ALJ in the
above docket found in Finding of Fact No. 27 that the altered documents
were not submitted for payment, were not submitted for the purpose of
dishonest or fraud, and were not intended to represent or misrepresent
anything to BISD. Further, Finding of Fact No. 28 finds the evidence did
not show that Mr. Walker engaged in an activity that constituted dishonesty,
misrepresentation, or fraud, by submitting such documents to Beaumont
Independent School District (BISD). Conclusion of Law No. 10 concludes
that Mr. Walker did not violate 16 TEX. ADMIN. CODE, Section 73.60(d)(3)
as alleged in Allegation No. 49. The PFD's findings of fact and conclusions
of law were adopted by the Commission.
As can be seen from a review of the above adjudicated cases the
Comptroller exceeded her authority in her attempt to find fraud.
2
SOAH SOAH Docket No. XXX-XX-XXXX. Texas Department of Licensing and Regulation v. Calvin G.
Walker d/bla Walkers Electric Company and Walkers Electric Company. To access a copy of the
Proposal for Decision (PFD) utilize the web page for the State Office of Administrative Hearings (SOAH).
Soah .tx.us; Electronic Case Files. Enter the SOAH docket number above, then press search. Scroll to
the PFD. Here is an official copy is stored. The agency adopted the findings of fact and conclusions of
law of the ALJ in the above docket.
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Under the facts surrounding the Comptroller's decision to debar, the
Comptroller had no reason to determine that Walker Electric had committed
fraud or material misrepresentations during the course of performing a
contract with a state agency. These decisions were made in the back
office not in the light of day of an adjudicative hearing as was the case in
the above dockets. Had Walker been allowed to have a contested hearing
in this matter the same result would have occurred and Walker Electric's
right to do business with the state, the ability to be on the State's Master
Bidder List and the HUB Certification would have been maintained. Instead
the Comptroller, behind closed doors, ignored the law and rules and acted
to the detriment of Appellees.
2. CONTESTED CASE HEARING.
The court states that the Austin Court of Appeals has repeatedly held
that, absent express statutory authority, the APA does not independently
provide a right to a contested case hearing under the APA,
Sections 2001.003(1) and 2001.171. The court states that Walker Electric
has not provided argument as to why the court should depart from its
precedent. The court further states that in absence of such argument, the
court will not conclude that the APA itself creates a right to a contested
case hearing .
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This same precedent is discussed at length in Professor Seal's
textbook. Ronald L. Beal, Texas Administrative Practice and Procedure
(LEXIS Law Publishing, 15th ed. 2012, Chapter 5, Section 5. 7.1 et. seq.).
Professor Beal points out that in the 20 years plus history of the APA,
there have only been a few reported decisions regarding the right to a
contested case hearing. He cites six such cases. These are: Eldercare
Props., Inc. v. Tex. Dep't of Human Servs., 63 S.W.3d 551 (Tex. App.-
Austin 2001 ); Best & Co. v. State Bd. of Plumbing Examiners, 927 S.W.2d
306 (Tex. App.-Austin 1996); Ramirez v. Texas State Bd. of Medical
Examiners, 927 S.W.2d 770 (Tex. App.-Austin 1996); H. Tebbs, Inc. v.
Silver Eagle Distributors, Inc., 797 S.W.2d 80 (Tex. App.-Austin 1990);
Madden v. Texas Bd. of Chiropractic Examiners, 663 S.W.2d 622 (Tex.
App.-Austin 1983; writ ref'd n.r.e.); and Big D Bamboo, Inc. v. State, 567
S.W.2d 915 (Tex. Civ. App.-Beaumont 1978).
Professor Beal is of the opinion that due to lack of litigation on this
subject, it is apparent that Texas agency officials have liberally construed
the right to such a hearing.
Professor Beal acknowledges that the APA lacks any express
coverage section delineating exactly when one has a right to a contested
case proceeding. However, he points out that the Texas Bar Committee
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that drafted the APA intended that the definition of a contested case would
constitute such a right. He is of the opinion that the definition section of the
APA was intended by the committee to expand the coverage of contested
cases beyond that required by the agency's enabling legislation and to
require agencies to hold such trial type proceeding any time they were
determining the legal rights, duties or privileges of a party.
He points out that this court in 1996 Best & Co. v. State Bd. of
Plumbing Examiners, 927 SW2d, 306, 308-09 (Tex. App.--Austin, 1996)
rejected any strict proposition that the definition of a contested case
necessarily required the procedure at any time. He points out that under
the facts of that case, there was no constitutionality or statutory provision
requiring an adjudicated hearing (in that Best did not have a plumbing
license and was only applying for a privilege of conducting educational
programs to plumbers).
Professor Beal points out two other cases where this court has held
that a contested case was mandatory because the statute governing the
agency either expressly or by implication required an adjudicated hearing.
Ramirez v. Texas State Bd. of Medical Examiners, 927 SW2d, 770, 772-73
(Tex. App.-Austin 1996); and Madden v. Bd. of Chiropractor Examiners,
663 S.W.2d 622, 624 (Tex. App.-Austin, 1983 writ ref. nre).
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He states absent an express statutory requirement to hold a
contested case hearing, the analysis should focus on what is implied in the
statute as it relates to the definition of a contested case as set forth in the
APA. He asserts that if the statute when read as a whole contemplates an
adjudicative hearing then one is mandated.
Professor Beal points out that this court has held an "adjudicative
hearing." An adjudicative hearing is a hearing at which the
decision-making agency hears evidence and based on that evidence and
acting in a judicial or quasi-judicial capacity determines rights, duties, or
privileges of the party before it. He cites Foster v. Teacher Ret. System,
273 S.W.3d 883 (Tex. App.-Austin 2008); Ramirez v. Texas State Bd. of
Medical Examiners, 927 S.W.2d 770, 772-73 (Tex. App.-Austin, 1996); and
Best & Co. v. Texas State Board_of Plumbing Examiners, 927 S.W.2d 306,
309 (Tex. App. Austin, 1996, writ denied). He states that the Texas
Supreme Court has held that an agency has been vested with quasi-judicial
power when the agency in the exercise of its function is required to pass
upon facts and determine its action by the facts found or when the agency
has the power to issue and cause process to be served, to enter orders
which are final, unless set aside on appeal and to enforce its judgments
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which govern the rights of the parties. Missouri, Kansas & Tex. Railway
Co. v. Shannon, 100 Tex. 379, 100 S.W. 138, 141 (Tex. 1907).
He is of the opinion that even when the governing statute does not
expressly call for a contested case hearing, but one is clearly implied, as in
this matter, that such a statutory mandate requires an "adjudicative
hearing" under the APA definition of a contested case hearing. He also
points out that this court suggests that the right may exist if historical
practice of an agency demonstrates that it routinely provided the right to
such a hearing under circumstances involved. He also pointed out that the
Austin Court has held that even though a contested case hearing was not
mandated by the express or implied language of the statute, when the
agency has given the party notice it would conduct a contested case
hearing then it was bound to do so.
Professor Beal states that the right to a contested case hearing is far
broader than relying merely on an express statutory grant and, in fact, the
Austin courts interpretation is actually consistent with the Bar Committees
attempt to have the right to a contested case hearing to the norm instead of
the exception to agency decision making.
He states, unfortunately the Austin court has placed a cloud over
these holdings and principles by stating in its five most recent decisions
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that a person or entity had no right to a contested case proceeding under
the APA unless the statute governing the agency expressly requires such a
hearing.
Professor Beal states that it is clearly incumbent upon this Court to
overrule these holdings as simply inconsistent with existing precedent or to
clarity whether it truly intended to overrule existing case law.
Walker Electric would join with Professor Seal's request that this
Court confirm that the APA itself creates a right to a contested case hearing
in those cases where the agency hears evidence and based on that
evidence acts in a judicial or quasi-judicial capacity and determines the
rights, duties or privileges of a party before it.
Walker Electric would respectfully request this court, on rehearing, to
find that the statutory scheme involved by implication required the
Comptroller to determine the legal rights or privileges of Walker Electric
and acted in a judicial or quasi-judicial capacity to determine Walker
Electric's rights or privileges. As such, the Comptroller is required under
the definition of contested case in the APA to hold a contested case under
the APA. Thus, the APA affords the right of judicial review and removed
any question of sovereign immunity.
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3. VALIDITY OF ADMINISTRATIVE RULE.
The court states that Walker Electric asserted that the Comptroller's
rule defining grounds for debarment is invalid because it is inconsistent with
the debarment statute. The court also states that Walker Electric also
states that APA, Section 2001.038 waives sovereign immunity when
Walker Electric sought a declaratory judgment action seeking to invalidate
Rule 20.105.
The court is mistaken that all Walker Electric sought was to invalidate
this rule. The pleading in this matter, Section G, asserted that the
application or applicability of 34 TEX. ADM. CODE, Section 20.105 as to the
facts of this matter are such that the rule does not apply to Walker Electric.
The rule only allows debarment when fraud is proven. Therefore, the rule
is not applicable to Walker Electric. Walker Electric is entitled to a
declaratory ruling under APA, Section 2001.038 declaring that under the
facts of this matter Rule 20.105 is not applicable as no fraud was involved
in Walker's plea to a Federal misdemeanor as has now been confirmed in
two adjudicated cases at the State Office of Administrative Hearings. See
Footnote 1 and 2.
As such, one of the main arguments of Plaintiff in its pleading relates
to its contention that Rule 20.105 has no application or applicability to
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Walker Electric coupled with the fact that the rule interferes with or impairs
a legal right or privilege of Walker Electric. Therefore, then the trial court
had subject matter jurisdiction under APA, Section 2001.038 and defeats
the Comptroller's argument relating to sovereign immunity. Texas Dep't of
State Health Servs. v. Ba/guinta, 429 S.W.3d 726, 744 (Tex. App.-Austin
2014, pet. filed) and Texas Logos, 241 S.W.3d 105, (Tex. App.-Austin
2007, no pet). Therefore, Walker Electric pied a justifiable controversy and
the trial court had subject matter jurisdictions.
4. ULTRA VIRES.
The court is correct that Walker Electric asserted in its pleadings that
Section 2155.077 of the Government Code does not authorize the
Comptroller to debar vendors for fraud when the conduct alleged to be
wrongdoing is not fraud.
The court goes through an exercise relating to TEX. GOVT. CODE,
Section 2155.077(a) and states the Comptroller can debar a vendor upon
proof the vendor has committed fraud (whether it was against a federal,
state or local unit). However, there was no fraud whether against a federal
state or local unit as shown above in the Walker Electric misdemeanor
Federal plea. This would have been adjudicated appropriately at trial as it
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has been done two times since the filing of Plaintiff's pleading in this case.
See Footnotes 1 and 2.
Walker Electric asserted that the Comptroller's action was based on
an erroneous decision that the plea to a misdemeanor federal matter
involved fraud. It did not. Therefore, this suit seeking to compel a
governmental official to comply with statutory or constitutional provisions,
i.e., an ultra vires suit is not barred by sovereign immunity. City of El Paso
v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009).
The Plaintiff's original petition has raised sufficient facts to assert a
valid ultra vires claim. The Comptroller had no authority to find that fraud
was involved in the Federal plea in question. As such, these claims are not
barred by sovereign immunity. Heinrich, 284 S.W.3d 366.
The court has found that Walker Electric has failed to allege an ultra
vires claim under TEX. GOVT. CODE, Section 2155.00?(a) because it raised
a question that fraud was arguably only considered when committed
against the state or state agency. Nevertheless, fraud is the only basis for
action under TEX. GOVT. CODE, Section 2155.077(a) and facts exist or
could plead that fraud of any kind was not applicable under this section.
Even if Walker Electric did not plead consistent with the requirements
of Henrich, 284 SW 3d, 372, there are other allegations that could be made
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that the Comptroller acted without legal authority. There is simply no
incurable defects that exist. This issue is one of pleading sufficiency.
Walker Electric should be afforded the opportunity to amend Scott v.
Alphonso Crutch, LC Charter School, Inc., 392 S.W.3d 165, 171 (Tex.
App.-Austin 2010).
5. DUE PROCESS AND DUE COURSE OF LAW.
The court acknowledges that administrative decisions may be
attacked in court if they adversely affect a vested property right or
otherwise violate some provision of the State or Federal/Constitution.
Citing Gas. Ins. Co. v. Functional Restoration Assoc., 19 S.W.3d 393, 404
(Tex. 2000).
The court asserts that Walker Electric property rights only relates to a
right to contract with the state in the future.
Walker Electric would agree that due process remains inapplicable
unless the agency action affects a protected interest. Bell v. Tex. Workers
Comp. Comm'n, 102 S.W.3d 299, 304-305 (Tex. App. -Austin 2003.
To determine whether an interest is protected, the courts generally
look to the nature of the interest at stake. Goss v. Lopez, 419 U.S. 565,
572 (1975).
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But in modern times the courts have rejected the wooden distinction
between what was previously considered a right or a privilege. Id. Today,
liberty is much broader then physical liberty and now includes among other
things, the right of an individual to contract, to engage in commercial
occupations of life, to acquire useful knowledge, to marry, and generally
enjoy these privileges long recognized as essential to the orderly pursuit of
happiness by free persons. Bd. of Regents v. Roth, 408 U.S. 565, 569-70
(1972).
It is acknowledged that while the state may touch upon, hinder or
modify ones' exercise of the liberties considered affected in the
constitutional sense, the action must affect the persons good name,
reputation, honor or integrity or impose a stigma or other disability that
foreclosed the persons freedom to exercise the interest in the future. Bd, of
Regents v. Roth, 408 U.S. at 573-574.
One must show a legitimate claim of entitlement that is more than an
abstract need or desire or more than a unilateral expectation. They must
stem from an independent source such as a state law that entitles citizens
to certain benefits.
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When a person shows that he or she is entitled to the statutory
benefits, the legitimate claim of entitlement deserves constitutional
procedural due process.
Walker Electric had a statutory right and benefit to apply for and be
placed on the centralized Master Bidders List under Sections 2155.261-270
of the Government Code.
Walker Electric had a statutory right and benefit to apply for and be
listed as a Historically Underutilized Business (HUB) under
Section 2161.001 of the Government Code.
Walker Electric had the right to contract with the state, until the
Comptroller debarred it for activities which were not proven a violation of
TEX. GOVT CODE, Section 2155.0779(3)(a).
The Comptroller's unauthorized revocation of Walker Electric from the
HUB listing, removal from the Centralized Business and barring of Walker
Electric from doing business with the state for five years was contrary to
due course of law without a valid hearing.
These rights stemmed from an independent source that being the law
and rules referred to above. These rights were not merely abstract. These
rights were subpart to a valid due process right when the statue
unjustifiably took them away.
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The court asserts that the debarment (plus revocation of the HUB
certificate and removal from the Centralized Master Bidders List) only
relates to the right to contract with the state in the future. This is not the
only right, benefit or vested interest that is of concern. A protected right
involved is to the good name of Walker. The reputation and good name of
Walker's Electric was called into question. Certainly, the Comptroller's
impermissible actions imposes a stigma or other disability that foreclosed
the Walker Electric freedom to exercise the interest protected in the future.
Bd. of Regents v. Roth, 408 U.S. at 573-574. These actions are not barred
by sovereign immunity. City of El Paso v. Hernandez.
Here Walker Electric was entitled to the statutory benefits and
constituted due process protection.
In Scott v. Alphonso Crutch, LC Charter School, Inc., 392 S.W.3d 165,
the court found that when there is a pleading in sufficiency an opportunity
to amend should be given. Other protected rights, other than the right to
contract with the state in the future, could be at issue. Therefore, the court
should afford an opportunity to amend its pleadings prior to extinguishing
Walker Electric's protected rights.
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IV.
CONCLUSION/PRAYER
Walker Electric in this Motion for Rehearing has submitted one or
more valid reason for this count to grant this motion.
Walker Electric would respectfully request that this court, after further
review, find that the trial court was correct in its denial of the Comptroller's
plea to jurisdiction.
Respectfully submitted,
Husch Blackwell, LLP
111 Congress Avenue, Suite 1400
Austin, Texas 78701
(512) 479-9709
(512) 479-1101 (fax)
By: Isl Ace Pickens
Ace Pickens
ace. pickens@h usch blackwell. com
State Bar No. 15972000
COUNSEL FOR APPELLEES
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CERTIFICATE OF COMPLIANCE
I hereby certify that the foregoing document contains 3,865 words,
according to the word count of the computer program used to prepare it, in
compliance with Rule 9.4(i)(2), excluding exempt items.
Isl Ace Pickens
ACE PICKENS
CERTIFICATE OF SERVICE
I hereby certify by my signature below that a true and correct copy of
the foregoing document has been served on counsel of record for
Appellants via E-filing on the 2nd day of February, 2015.
Kristofer S. Monson
Assistant Solicitor General
Office of the Attorney General
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548
kristofer.monson@oag.state.tx.us
Isl Ace Pickens
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