ETC Marketing, Ltd. v. Harris County Appraisal District ( 2015 )


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  •                                                                                          ACCEPTED
    01-12-00264-CV
    FIRST COURT OF APPEALS
    HOUSTON, TEXAS
    7/1/2015 11:06:57 AM
    CHRISTOPHER PRINE
    CLERK
    NO. 01-12-00264-CV
    FILED IN
    1st COURT OF APPEALS
    IN THE COURT OF APPEALS         HOUSTON, TEXAS
    7/1/2015 11:06:57 AM
    FOR THE FIRST DISTRICT OF TEXASCHRISTOPHER A. PRINE
    Clerk
    AT HOUSTON
    ETC MARKETING, LTD.,
    Appellant,
    v.
    HARRIS COUNTY APPRAISAL DISTRICT,
    Appellee.
    APPELLANT’S REPLY IN SUPPORT OF
    MOTION FOR EN BANC RECONSIDERATION
    Lynne Liberato                          Robert J. Myers
    State Bar No. 00000075                  State Bar No. 14765380
    William Feldman                         John J. Shaw
    State Bar No. 24081715                  State Bar No. 24079312
    HAYNES AND BOONE, LLP                   MYERS ✯ LAW
    1221 McKinney Street, Suite 2100        2525 Ridgmar Blvd., Ste. 150
    Houston, Texas 77010-2007               Fort Worth, Texas 76116
    Telephone: (713) 547-2000               Telephone: (817) 731-2500
    Telecopier: (713) 547-2600              Telecopier: (817) 731-2501
    Lynne.Liberato@haynesboone.com          RMyers@myerslawtexas.com
    William.Feldman@haynesboone.com         JShaw@myerslawtexas.com
    Attorneys for Appellant, ETC Marketing, Ltd.
    TABLE OF CONTENTS
    TABLE OF CONTENTS ........................................................................................... i
    TABLE OF AUTHORITIES .................................................................................... ii
    ARGUMENT IN REPLY ..........................................................................................1
    CONCLUSION ..........................................................................................................6
    CERTIFICATE OF COMPLIANCE .........................................................................8
    CERTIFICATE OF SERVICE ..................................................................................9
    -i-
    TABLE OF AUTHORITIES
    Cases
    Complete Auto Transit, Inc. v. Brady,
    
    430 U.S. 274
    (1977) ...........................................................................................3, 
    4 Greene v
    . Farmers Ins. Exch.,
    
    446 S.W.3d 761
    (Tex. 2014) ..............................................................................4, 6
    Marathon Ashland Petroleum L.L.C. v. Galveston County Appraisal Dist.,
    
    236 S.W.3d 335
    (Tex. App.—Houston [1st Dist.] 2007, no pet.) .....................2, 
    3 Md. v
    . Louisiana,
    
    451 U.S. 725
    (1981) ...............................................................................................2
    Midland Cent. Appraisal Dist. v. BP Am. Prod. Co.,
    
    282 S.W.3d 215
    (Tex. App.—Eastland 2009, pet. denied),
    cert. denied 
    131 S. Ct. 2097
    (2011) ...................................................................4, 5
    Peoples Gas, Light & Coke Co. v. Harrison Cent. Appraisal Dist.,
    
    270 S.W.3d 208
    (Tex. App.—Texarkana 2008, pet. denied),
    cert denied 
    131 S. Ct. 2097
    (2011) ....................................................................3, 4
    Schneidewind v. ANR Pipeline Co.,
    
    485 U.S. 293
    (1988) ...............................................................................................2
    Statutes and Rules
    18 C.F.R. § 284.1(a)...................................................................................................2
    - ii -
    TO THE HONORABLE COURT OF APPEALS, EN BANC:
    ETC Marketing, Ltd. respectfully files this reply in support of its motion for
    reconsideration en banc.
    ARGUMENT IN REPLY
    HCAD’s response highlights the extraordinary circumstances that warrant
    this Court’s en banc review. Contrary to HCAD’s assertions, this case does indeed
    represent the first time that any Texas appellate court has found constitutional a tax
    on goods in the stream of interstate commerce. And, while HCAD summarily
    dismisses ETC’s substantial concerns, it ultimately does not dispute that the
    panel’s decision will create a county-by-county patchwork of different rules
    governing the imposition of ad valorem taxes on interstate commerce, or that the
    decision will have substantial consequences for companies and consumers across
    Texas.
    Interstate Commerce: HCAD dedicates the first several pages of its
    argument to the issue of whether the natural gas here was in interstate commerce.
    (Opp. Br. at 3-6.) Nevertheless, the majority assumed, and the dissent concluded,
    that the gas was in interstate commerce. (Majority at 8, 12; Dissent at 5, 14-16.) As
    the dissent explained, “working gas in the pipeline [is] in interstate commerce from
    the moment it [is] injected into the pipeline system.” (Dissent at 14.)
    HCAD, however, argues that goods are not in interstate commerce unless
    movement “from another state has actually begun and is going on,” and that ETC
    provided no evidence that its gas was “actually moving to another state.” (Opp. Br.
    at 3-4.) HCAD’s argument ignores controlling law and draws an artificial
    distinction between gas in one part of the pipeline system and gas elsewhere in that
    same system. As the dissent recognized, storage and transportation cannot
    “realistically be separated.” (Dissent at 5, 14.) The Supreme Court has agreed. See
    Schneidewind v. ANR Pipeline Co., 
    485 U.S. 293
    , 308 (1988) (gas storage facilities
    are regulated by FERC “since those facilities are a critical part of the transportation
    of natural gas and sale for resale in interstate commerce.”); Maryland v. Louisiana,
    
    451 U.S. 725
    , 754-55 (1981) (“[T]he flow of gas from the wellhead to the
    consumer, even though ‘interrupted’ by certain events, is . . . a continual flow of
    gas in interstate commerce.”). Federal regulations likewise recognize that
    “transportation” of natural gas “includes storage.” 18 C.F.R. § 284.1(a). The gas
    temporarily located at the Bammel facility is in the stream of interstate commerce.
    No justice on the panel concluded otherwise.
    For that reason, HCAD’s extensive reliance on this Court’s decision in
    Marathon Ashland Petroleum L.L.C. v. Galveston County Appraisal District, 
    236 S.W.3d 335
    (Tex. App.—Houston [1st Dist.] 2007, no pet.) is misplaced. (See,
    e.g., Opp. Br. at 2-3, 5, 6, 9, 11.) In that case, the court held that petroleum
    -2-
    products held in Marathon’s refinery tanks before shipment to consumers could be
    taxed by local authorities because those products had “not yet entered the stream
    of interstate commerce” and were instead “part of the general mass of property in a
    state” that was “subject to state taxation in the usual way.” Marathon 
    Ashland, 236 S.W.3d at 338
    (emphasis added); see also 
    id. at 336,
    343. Because Marathon’s
    petroleum products were not yet in interstate commerce, the court concluded that
    the Complete Auto test did not apply. 
    Id. Here, in
    contrast, the natural gas is in the
    stream of interstate commerce even while it is at the Bammel facility. HCAD’s ad
    valorem tax may therefore be upheld only if it satisfies all four prongs of the
    Complete Auto test.1
    Complete Auto Test: Because the natural gas is in interstate commerce, the
    only remaining issue is whether ETC’s temporary storage of natural gas in
    interstate commerce can be subject to local taxation under the Complete Auto test.
    Complete Auto Transit, Inc. v. Brady, 
    430 U.S. 274
    (1977). The ad valorem tax at
    issue fails to satisfy even one of the Complete Auto prongs. (Mtn. for
    Reconsideration En Banc at 8-17; Br. of Amicus Curiae Valero Marketing &
    1
    Marathon is also distinguishable because in that case Marathon Ashland Petroleum
    exercised “complete control” over the physical movement of the petroleum products in its
    
    refinery. 236 S.W.3d at 341
    . ETC, in contrast, does not control the movement and storage of the
    natural gas temporarily located at the Bammel facility. See Mtn. for Reconsideration En Banc at
    2; see also Peoples Gas, Light & Coke Co. v. Harrison Cent. Appraisal Dist., 
    270 S.W.3d 208
    ,
    215 (Tex. App.—Texarkana 2008, pet. denied), cert denied 
    131 S. Ct. 2097
    (“Unlike the
    taxpayer in Marathon Ashland Petroleum, L.L.C., Peoples does not maintain any control over the
    physical movement of the gas.”).
    -3-
    Supply Co. at 10-12; see also Dissent at 16-24.) The tax must satisfy all four
    prongs of Complete Auto to be constitutional. Complete 
    Auto, 430 U.S. at 279
    .
    Existing Texas Authority: Under existing Texas authority, the natural gas
    at issue here would not be subject to local ad valorem taxes. Peoples Gas, Light &
    Coke Co. v. Harrison Cent. Appraisal Dist., 
    270 S.W.3d 208
    (Tex. App.—
    Texarkana 2008, pet. denied), cert. denied 
    131 S. Ct. 2097
    (2011); Midland Cent.
    Appraisal Dist. v. BP Am. Prod. Co., 
    282 S.W.3d 215
    , 224 (Tex. App.—Eastland
    2009, pet. denied), cert. denied 
    131 S. Ct. 2097
    (2011). Those decisions are
    materially indistinguishable from this case. (See Dissent at 10-19, 22-24; Mtn. for
    Reconsideration En Banc at 9-14.)
    Policy Considerations: HCAD also argues that this Court should not
    consider the broad repercussions of the majority’s decision because those
    arguments are “alarmist” and “unsupported,” even though those same concerns
    were voiced by both the dissent and by amicus curiae Valero. (Opp. Br. at 1 n.10.)
    They further suggest that this Court should ignore those concerns because they
    were not raised to the trial court. (Id.) But “parties are free to construct new
    arguments in support of issues properly before the Court.” Greene v. Farmers Ins.
    Exch., 
    446 S.W.3d 761
    , 764 n.4 (Tex. 2014). The issue here—whether local
    taxation of natural gas in interstate commerce violates the commerce clause of the
    U.S. Constitution—was squarely before the trial court and the court of appeals.
    -4-
    In any event, the broad repercussions of the majority’s decision cannot
    simply be dismissed as “alarmist” or hypothetical. The panel’s ruling has
    significant negative consequences that make immediate correction essential. As the
    dissent cautions, the majority’s decision will erect a “financial barrier” around
    Harris County and the other counties within this Court’s jurisdiction, see Dissent at
    21, as companies seek to store their goods elsewhere. Amicus Curiae Valero
    Marketing & Supply Co. warns that “the panel’s decision . . . will subject
    companies to a complex patchwork regime” of tax regulations and is “bad for
    Texas businesses, taxpayers, and consumers.” Amicus Curiae Valero Marketing &
    Supply Co. at 13-14. The majority’s decision also raises the prospect of multiple
    taxation. As the Eastland Court of Appeals recognized when striking down a
    similar ad valorem tax, “if the tax in this case is upheld, then ad valorem taxes
    could potentially be levied by any taxing authority on oil in transit but located, at
    the time of assessment, in the portion of an interstate pipeline system within the
    boundaries of that taxing authority.” Midland Cent. Appraisal 
    Dist., 282 S.W.3d at 224
    ; see also Mtn. for Reconsideration En Banc at 5-8. Notably, HCAD’s brief
    does not even address any of the significant statewide implications of the panel’s
    decision.
    State Law Grounds: Finally, HCAD rejects the independent state-law
    grounds for invalidating the ad valorem tax, arguing that ETC waived the issue by
    -5-
    not raising it in its motion for summary judgment. (Opp. Br. at 18-20.) But the
    issue was in fact raised below. See Appellant Br. at 49; Plf. Orig. Pet. at 3-8; Plf.
    Mtn. for Summary Judgment at 1, 5-6; Plf. Resp. to Def. Mtn. for Summary
    Judgment at 5-6; 
    Greene, 446 S.W.3d at 764
    n.4. Even HCAD concedes that “[t]he
    first page of ETC’s motion for summary judgment did state the taxing units lacked
    jurisdiction to tax the gas.” (Opp. Br. at 19.) The Majority addressed the merits of
    ETC’s statutory argument, recognizing that ETC’s “motion for summary judgment
    also included an argument that HCAD lacked jurisdiction to tax the property.” (Op.
    at 2 n.1.)
    CONCLUSION
    ETC respectfully requests that the Court grant its motion for en banc
    reconsideration and grant the relief as specified in its motion.
    Respectfully submitted,
    HAYNES AND BOONE, LLP
    /s/ Lynne Liberato
    Lynne Liberato
    State Bar No. 00000075
    William Feldman
    State Bar No. 24081715
    1221 McKinney Street, Suite 2100
    Houston, Texas 77010-2007
    Telephone: (713) 547-2000
    Telecopier: (713) 547-2600
    Lynne.Liberato@haynesboone.com
    William.Feldman@haynesboone.com
    -6-
    Robert J. Myers
    State Bar No. 14765380
    John J. Shaw
    State Bar No. 24079312
    MYERS ✯ LAW
    2525 Ridgmar Blvd., Ste. 150
    Fort Worth, Texas 76116
    Telephone: (817) 731-2500
    Telecopier: (817) 731-2501
    RMyers@myerslawtexas.com
    JShaw@myerslawtexas.com
    COUNSEL FOR APPELLANT,
    ETC MARKETING, LTD.
    -7-
    CERTIFICATE OF COMPLIANCE
    TEX. R. APP. P. 9.4(i)(3)
    I hereby certify that this Reply in Support of Motion for En Banc
    Reconsideration contains a total of 1,380 words, excluding the parts of the brief
    exempted under TEX. R. APP. P. 9.4(i)(1), as verified by Microsoft Word 2010.
    This Motion is therefore in compliance with TEX. R. APP. P. 9.4(i)(2).
    Dated: July 1, 2015.
    /s/ Lynne Liberato
    Lynne Liberato
    Counsel for Appellant,
    ETC Marketing, Ltd.
    -8-
    CERTIFICATE OF SERVICE
    In accordance with the Texas Rules of Appellate Procedure, I hereby certify
    that a true and correct copy of Appellant’s Reply in Support of Motion for En Banc
    Reconsideration was served on the following counsel of record on July 1, 2015:
    Counsel for Appellee
    Harris County Appraisal District:
    Mario L. Dell’Osso                                  Via E-Service
    Eric C. Farrar
    OLSON & OLSON, LLP
    Wortham Tower, Ste. 600
    2727 Allen Parkway
    Houston, Texas 77019-2133
    /s/ Lynne Liberato
    Lynne Liberato
    -9-